WASHINGTON (Reuters) - The world needs more coordination of monetary policy to avoid exchange rate volatility and achieve balanced economic growth, the European Union’s economic and monetary affairs commissioner said on Friday.
Such coordination could take place in the framework of the International Monetary Fund or the Group of 20 biggest developing and developed economies, the commissioner, Olli Rehn, said as the IMF and World Bank convened meetings here.
“I can see that there is a certain need for reinforced international coordination of monetary policy,” Rehn told Reuters in an interview. “We are discussing with our partners the possible ways and means to advance such coordination in the G20 and IMF.”
Finance ministers and central bank governors from the Group of Seven richest industrialized countries were to discuss the issue on Friday evening, and the talks are likely to be continued in the wider G20 forum at the end of the month.
“I am looking forward to the G7 and later the G20 discussing the chances of enhancing international coordination of monetary policy, where the G20 and the IMF might play an enhanced role,” Rehn said.
Asked if it should be the IMF that would help coordinate policies globally, Rehn said: “In my view the IMF is a natural choice for facilitating enhanced international coordination of monetary policy.”
The need for more coordination is underlined by recent actions by several countries around the world to weaken their currencies in order to help exports and boost economic growth.
China has kept the yuan undervalued in a managed float, while Japan intervened in currency markets to stop the yen’s rise. Switzerland, South Korea, Chile and Colombia also moved to weaken their currencies.
The United States raised the possibility of further quantitative easing of monetary policy, which caused the dollar to fall further, and Brazil doubled the tax on foreign purchases of its bonds to stop the real from appreciating.
“We have not had a currency war, but certainly we had negative developments in terms of competitive non-appreciations or competitive devaluations,” Rehn said.
“In order to achieve a rebalancing of global growth, which is the main message of the IMF annual meetings, there is a need to address the currency issue as well; exchange rates should reflect economic fundamentals,” he said.
Euro zone officials made it clear to China earlier this week that the Chinese authorities should allow the yuan, also known as the renminbi, to appreciate against the euro. China’s Prime Minister Wen Jiabao did not share that view.
Rehn said a stronger yuan was in China’s interest.
“If there is no such movement toward rebalancing of global growth, the European economic recovery, for instance, would be weakened,” Rehn said. “Europe is China’s largest export market, and it is not in the Chinese interest to weaken this market by putting a disproportionate burden on the shoulders of the Europeans,” he said.
Asked if the euro, trading around $1.40, was too strong, Rehn said:
“Since several other currencies have been put on a path of depreciation recently, the euro has gained in value. It is not good for the European economy, nor for the world economy, for the euro area to carry a disproportionate burden of exchange rate volatility.”
Reporting by Jan Strupczewski; Editing by Leslie Adler