OTTAWA (Reuters) - Advanced economies must explain their monetary policy approach clearly to the rest of the world and some emerging economies need to strengthen policies in order to soften the financial market volatility during this unprecedented period of transition, a senior Canadian finance official said on Monday.
Briefing reporters about a February 22-23 meeting of finance ministers and central bank chiefs from the Group of 20 advanced and emerging economies in Sydney, Australia, the official, who declined to be named, said the G20 needed to take a step back and take a broader view than just the U.S. Federal Reserve’s tapering of its bond-purchasing program and the spillover effects.
Following the Great Recession, the global economy is going through a Great Transition, he said, and therefore it is not surprising that there be significant currency moves and other volatility. All major economies need to make big adjustments, he said, adding that mitigating the volatility requires action on everyone’s part.
Without mentioning the United States, he said monetary policy in advanced economies must be well-communicated to the rest of the world and calibrated to the pace of the recovery, a message the G20 gave last year and which Canada expects to be repeated in Australia.
At the same time, he said the conclusion of the recent emerging market rout was that some countries with weak policy frameworks must strengthen their policies.
Again, he did not name specific countries, nor would he say whether the G20’s final communiqué would contain language along these lines.
Bond, currency and stock markets in developing countries have swung wildly in recent months as the Fed scales back its quantitative easing program and concerns about a rapid slowdown in China spooked investors.
Currencies in Turkey, South Africa, Hungary and Russia, which suffered violent sell-offs over the past month, have recovered slightly but some investors are bracing for possible further turbulence in coming months.
Asked whether the G20 would try to discourage countries from seeking to boost economic growth through currency devaluations, the official said that if the issue did come up, Canada would push for a statement similar to that of a year ago at a G20 meeting in Moscow.
At that time, when talk of “currency wars” had flared, the G20 communiqué included a commitment to refrain from competitive devaluations and stated that monetary policy would be directed only at price stability and growth.
Another sore point for emerging economies within the G20 is the United State’s failure to ratify reforms to the International Monetary Fund (IMF) to give emerging powers like China, India and Brazil a greater voice in the institution.
In January, U.S. lawmakers failed to agree on key funding measures for the IMF that would have completed historic reforms agreed in 2010. The IMF quota reform cannot go ahead without the United States, which holds the only controlling share of IMF votes.
Canada is pushing for a constructive solution and believes the reform must proceed, the Canadian official said, adding that he expected to hear G20 emerging economies to loudly voice their disappointment in the U.S. delays.
Reporting by Louise Egan; Editing by Chizu Nomiyama and Marguerita Choy