* Carney says will hold G7 members to forex position
* Says G7 commitment must be enlarged to include G20 members
* Sees G20 discussion on Japan's monetary policy
* Says it is natural for monetary policy to influence FX
By Randall Palmer
OTTAWA, Feb 12 The Group of Seven leading
industrialized nations must go into this weekend's G20 meetings
forcefully pressing major emerging economies to adopt flexible
foreign exchange rates, Bank of Canada Governor Mark Carney said
Carney, who will change jobs and become the governor of the
Bank of England in July, also said it was critical that no G7
members use monetary policy to target exchange rates. His
comments come after Japan's new government pressed for an
aggressive loosening of monetary policy, which has caused the
yen to weaken sharply.
Carney was testifying to a Canadian House of Commons
committee about Canada's monetary policy, hours after the G7
issued a statement on flexible forex regimes.
"We signed a statement, the minister of finance and I, ...
which reaffirmed the commitment of the G7 to ensure that
monetary policy is focused on domestic objectives, not on
targeting exchange rates. And we hold the members of the G7 to
that long-standing position. It is extremely important," he
"It's important that we as a G7 go in united and forcefully
to the G20 to enlarge that commitment as quickly as possible
amongst the major emerging economies in the G20, some of whom
entirely ascribe to flexible exchange rates and are supportive,
others who have a lot of work to do."
The Group of 20 leading nations group comprises the
industrialized G7 as well as other major economies including
China and South Korea. G20 finance ministers and central bankers
will meet on Friday and Saturday in Moscow, with growing
international tensions over exchange rates hanging over their
Some politicians and market watchers have warned about the
risk of a so-called currency war in which nations, hoping to
revive sluggish economies by boosting exports, compete to
devalue their currencies.
In his testimony, Carney spoke positively about Japan's
fiscal expansion and noted the increase in its inflation target
to 2 percent. But he also pointed to concerns that have been
"There has been some concern that associated with those
major very positive developments in macro policy, that Japanese
authorities were targeting a certain level of the exchange rate.
There have been discussions at the G7 about this. I'm sure there
will be discussions this weekend at the G20," he said.
"The crucial point that we make here in Canada, and the
Japanese authorities have agreed to acknowledge, is that
monetary policy is focused on domestic outcomes. So if you're
focusing on the 2 percent inflation target, you're targeting
that domestic outcome, not the exchange rate."
Nonetheless, he indicated some understanding of the Japanese
position, in that monetary policy does naturally have
consequences for the exchange rate.
"If monetary policy is looser, more accommodative than it
was previously ... as it is in Japan given that they have raised
the target for inflation materially, that will have consequences
for the exchange rate. But the important thing is to stay
focused on the medium term."