By Louise Egan
OTTAWA Feb 17 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 Feb. 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
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
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 communique would contain language along
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 communique 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
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.