Currency devaluation should not be used as trade..
10 July 2009
Currency devaluation should not be used as trade tactic, leaders agree
The following is excerpted from today's edition of "globeandmail.com".
Leaders of rich and developing nations agreed not to use currency devaluation to gain a competitive advantage over each other by making their exported goods cheaper, according to draft summit conclusions obtained by The Associated Press.
“We will refrain from competitive devaluations of our currencies and promote a stable and well functioning international monetary system,” the leaders said in a draft joint declaration entitled “promoting the global agenda.”
One of the reasons often cited as to why the 1930s depression lasted so long was that countries acted independently to protect their own interest by devaluing their currencies.
Christine Lagarde, France's finance minister, for one was particularly vocal earlier this year about how Britain was gaining an advantage by doing nothing to stem the sharp fall in the pound against the euro.
Though the U.S. dollar was not mentioned in the draft declaration, its future as the world's reserve currency is likely to remain a topic for debate over the coming months and years, as China, Russia and India have expressed their desire to see long-term changes in the international monetary system. But they have been careful to not push their desire for change too far — in case the dollar slumps and the value of their large dollar-denominated investments plummet....
A sliding dollar would be bad for global growth as it introduces uncertainty into the financial markets and would raise the value of commodity prices, such as oil, that are priced in dollars. It would also make it far more difficult for the U.S. to fund its deficits as investors would be wary of buying up U.S. Treasury debt....