'Currency wars' back on international agenda

'Currency wars' back on international agenda

PARIS- The strength of the euro, the state of the global monetary system and controversy over a so-called "currency war" will dominate the economic stage at eurozone and G20 ministerial meetings this week.

The currency issue has been revived by Japan and is beginning to cause concern in some quarters in Europe.

France will raise the issue of the strengthening euro at a meeting of eurozone finance ministers on Monday. Then a meeting of G20 ministers is likely to focus on the big picture in Moscow on Friday and Saturday.

Eurozone finance ministers, meeting as the Eurogroup in Brussels on Monday, hold their first session under their new president Jeroen Dijsselbloem of the Netherlands, against a background of calmer conditions for their debt crisis.

Dijsselbloem has taken over from Jean-Claude Juncker of Luxembourg who chaired the meetings throughout the global financial crisis and then the eurozone debt turmoil.

This meeting is not expected to take any decisions either on help to debt-stricken Cyprus in the run-up to next week's presidential election there; or on the creation of a banking union, still the subject of intense negotiations.

The main focus of discussion is likely to be the rise of the euro: French Finance Minister Pierre Moscovici called last week for a debate on the euro's exchange rate.

France is worried that the strengthening euro makes eurozone exports look more expensive and could undermine government efforts to improve the competitive position of French industry and services. The Socialist administration is already grappling with weak growth and a big trade deficit.

France wants the eurozone to arm itself with a policy for the foreign exchange rate. The external value of the euro should not be left to market forces of the moment, French President Francois Hollande has argued.

Germany and the European Central Bank however, are keen to nip the debate in the bud, arguing that the European currency is not over-valued.

The ECB has statutory independence in managing monetary policy and its main obligation is to ensure price stability.

While the exchange rate is one of many factors affecting inflationary pressures, any targeting of an exchange rate would potentially interfere with the money supply and therefore monetary policy.

ECB president Mario Draghi was nevertheless cautious on Thursday about the strength of economic recovery in the eurozone. Many analysts saw his remarks as an attempt to talk down the rise of the euro.

If so, he succeeded: the euro was being quoted at US$1.33 at the end of the week having risen a few days earlier to the highest level for 14 months and above US$1.37.

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