WASHINGTON Group of 20 member nations must avoid beggar-thy-neighbor currency policies and the richest advanced economies need to stick to their long-standing rule to let market forces set their exchange rates, a senior U.S. official said on Monday.
Treasury Undersecretary Lael Brainard, the top U.S. official for international economic affairs, said fiscal and monetary policies should be aimed at achieving domestic objectives, as opposed to targeting a weaker currency to bolster exports.
"The G20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation," she told reporters at a briefing outlining U.S. priorities for a G20 finance ministers meeting on Friday and Saturday in Moscow.
Free exchange rates also help support fair global growth, Brainard said, adding that the meeting needed to focus on ways to strengthen the fledgling global economic recovery and avoid an undue tightening of fiscal policy that could hurt growth.
"Global growth is weak and vulnerable to the downside. Strengthening global demand must be at the top of the G20" agenda, Brainard said. "We must avoid jeopardizing the recovery with a premature shift to restraint."
She added that Europe in particular could consider "recalibrating" the pace of its fiscal consolidation, as unemployment remains high and the euro area as a whole is stuck in recession.
In recent weeks, currency concerns have jumped to the top of the agenda for the Moscow meetings of the G20 group of advanced and emerging economies.
U.S. and European officials privately have been concerned about comments from Japanese officials that suggest Tokyo is targeting a specific level for the yen.
Japan's new government has pressed for aggressively expansionary monetary policies, which have prompted the Japanese currency to weaken sharply. The yen has lost 15 percent against the U.S. dollar since October, and last week hit a near three-year low against both the dollar and the euro.
The G7 is considering issuing a statement this week reaffirming its commitment to "market-determined" exchange rates, two G20 officials said earlier on Monday.
"For the market process to work, exchange rates must be allowed to reflect market forces," Brainard said. "The G7 has long committed that exchange rates should float, except in rare circumstances where excess volatility or disorderly movements might warrant cooperation."
Brainard declined to say whether the United States has expressed its concerns to Japan in particular.
"We support the effort to reinvigorate growth and to end (deflation) in Japan," she said. "And of course, we also know Japan is an important member of the G7, and we'll continue to work with Japan in the G7 to continue to adhere to our important agreements in that forum."
Market participants interpreted her comments as suggesting the United States would not officially criticize Japan's currency policy, sending it even lower on Monday. The dollar rose to its highest level since May 2010 versus the yen, and the euro gained more than two percent against it.
Brainard will be attending the G20 meetings for the United States. President Barack Obama's Treasury nominee, Jack Lew, has not yet been confirmed by the Senate, and the acting secretary, Neal Wolin, is not able to attend as he is running the agency.
(Reporting by Anna Yukhananov; Editing by Andrew Hay and Paul Simao)