Abstract Editor's note: On September 5th, the G20 Hangzhou Summit came to an end. After two days of discussions, the meeting reached a lot of consensus. In a sense, these consensuses are also a program of action for the global economy, guiding the future of the global economy. Whether it is the world economy, but also...
Editor's Note: On September 5th, the G20 Hangzhou Summit came to an end. After two days of discussions, the meeting reached a lot of consensus. In a sense, these consensuses are also a program of action for the global economy, guiding the future of the global economy. Both the world economy and the G20 itself face important barriers. In the past eight years of the financial crisis, the world economy has still struggled to recover. Now it is necessary to take into account short-term problems and structural problems in the medium and long term. It is particularly important to implement programs that treat both the symptoms and the root causes and strengthen macroeconomic policy coordination and structural reforms. At the same time, this year's Leaders Summit also placed development issues at the forefront of the global macro policy framework, such as the 2030 Agenda for Sustainable Development. These are the distinctive features of this summit.
The mission of the G20 is also facing a transformation, from the initial crisis response mechanism to the long-term governance mechanism, from focusing on short-term policies to short-term and medium- and long-term policies. Many of the consensus reached at this summit is not only a common understanding, but also a program of action. In a number of areas, a series of tracking and evaluation mechanisms have been developed to assess the actions of countries.
In the closing speech, Chinese President Xi Jinping pointed out that the summit of the G20 leaders in Hangzhou has achieved fruitful results and has drawn a successful conclusion. I believe that this meeting will become a new starting point for the G20 to start from Hangzhou.
In many industry insiders, it is not easy for G20 member states to avoid a currency competitive devaluation and not to peg the exchange rate for competitive purposes. The reason is that the current global financial market environment is more complicated than when the G20 Shanghai Finance Ministers and Governors Meeting was held at the beginning of the year.
With the end of the G20 summit, how countries coordinate exchange rate policies to avoid currency competitive devaluation has become one of the most concerned topics in financial markets.
Before the G20 Hangzhou Summit, Yi Gang, deputy governor of the People's Bank of China, said that the G20 member states had reached a consensus on avoiding currency competitive devaluation and not pegged to the exchange rate for competitive purposes. . At the same time, G20 member states have reached consensus on policies such as monetary, fiscal and structural reforms, and will work together to promote world economic growth.
In the eyes of the financial industry, this consensus has brought the G20 countries' monetary policy coordination into a new phase of operation.
Although the G20 central bank governor and finance ministers meeting held in February had proposed to fully use monetary, fiscal and structural reforms to promote global economic growth, in the actual operation, some countries considered their structural reforms to be difficult. The fiscal stimulus space is limited, and it has to be turned to continue to expand the loose monetary policy to support economic growth. This move inevitably exacerbates the trend of domestic currency depreciation and is likely to trigger a new global currency competitive depreciation war.
However, the G20 countries are truly doing a long way to avoid currency competitive devaluation. The reason is that once global economic growth falls into recession, it is not ruled out that some countries are determined to adopt measures to allow competitive devaluation of their currencies, and compete for more export markets to ensure their economic growth and social stability.
IMF Managing Director Lagarde said that economic growth has been too slow for a long time. The G20 agreed that more and more economic growth is needed. Economic growth is not only stuck in the consideration of structural reforms, but also needs to be implemented. It needs to be targeted at international taxation. Tax avoidance is committed to more behavior.
“This means that countries may strengthen the taxation of cross-border flows of their own funds and avoid large-scale abnormal outflows of capital in the context of the current global monetary policy, in order to prevent the domestic currency from continuing to depreciate sharply.†An American hedge fund The manager thinks.
It is worth noting that during the G20 Hangzhou Summit, the G20 member states promised to discuss the communication in the foreign exchange market for the first time to further enhance confidence and stabilize the market.
In his view, this indicates that communication between countries on abnormal exchange rate fluctuations will become more frequent, and the regulation of global arbitrage hot money will become stricter.
Avoiding currency competitive devaluation "a long way to go"
In the opinion of many insiders, it is not easy for G20 member countries to reach a consensus on avoiding currency competitive devaluation and not pegged to the exchange rate for competitive purposes. The reason is that the current global financial market environment is more complicated than when the G20 Shanghai Finance Ministers and Governors Meeting was held at the beginning of the year.
Compared with the global financial market in February, the main concern is that the appreciation of the US dollar has caused the currencies of various countries to depreciate. The current global financial market is more uncertain. First, the Brexit triggered a large capital outflow in the Eurozone, which led to the increase of the currency between Europe and the Bank of England. Loose efforts to support economic development, but this move may trigger a large depreciation of the euro sterling, causing the market to worry about a renewed currency devaluation; second, the Bank of Japan frequently released the intervention of the currency to suppress the rising yen exchange rate, further worrying the market Countries may follow suit to protect their export competitiveness. Finally, cross-border flows of capital in emerging market countries face large-scale and large-scale problems, which may easily lead to a sharp depreciation of the new round of emerging market currency exchange rates.
"How to make these countries try not to adopt a monetary policy that causes the domestic currency to depreciate sharply has always been a difficult point in the coordination of exchange rate policies among countries around the world. After all, countries have their own different demands," said the US hedge fund manager.
Recently, Bank of Japan Governor Haruhiko Kuroda once again stressed that if the monetary easing policy outweighs the disadvantages, the Bank of Japan should not hesitate to take action, and the Bank of Japan still has a huge room for further interest rate cuts.
This statement made the market further worried that the Bank of Japan is likely to adopt a large-scale quantitative easing monetary policy while intervening in the foreign exchange market to significantly reduce the yen exchange rate to increase the competitiveness of Japanese commodity exports.
“The bigger worry in the market is that once the Bank of Japan unilaterally adopts loose monetary policy and foreign exchange intervention measures, it may trigger a new round of global financial market turmoil and abnormal fluctuations in multinational exchange rates,†he said. The reason is that due to Japan's long-term zero interest rate policy, the yen arbitrage trading has been rampant. According to incomplete statistics, the global yen arbitrage transaction is on the scale of hundreds of billions of dollars. These capitals are borrowed from the yen to expand the scale of leveraged investment, and all kinds of high-interest money assets are invested in the world to earn spreads.
Since the yen carry trade is very sensitive to policy fluctuations, once the Bank of Japan intends to take monetary interventions, it is likely that the yen arbitrage trade will return to Japan to hedge, which will not only make the Bank of Japan’s efforts to lower the yen’s exchange rate go down, but may also lead to A large number of capital outflows in high-yielding currency countries in emerging markets have forced these countries to increase monetary easing measures to make up for the funding gap, triggering a competitive devaluation between national currencies to compete for export markets.
Consensus "binding"
In the eyes of many financial industry insiders, this is precisely the problem that the G20 countries need to solve in order to coordinate exchange rate policy. The current foreign exchange market has experienced frequent turmoil. In addition to the large-scale yen arbitrage trading funds, and the central bank's continuous expansion of quantitative easing monetary policy, the liquidity of funds has led to a greater degree of volatility in the foreign exchange market. Turbulence, a little carelessness will trigger new market panic.
Zhu Guangyao, Vice Minister of the Ministry of Finance of China, pointed out at a press conference on the eve of the G20 summit that the G20 member states should reach a clear consensus on the close policy communication of the exchange rate market. Specifically, the finance ministers agreed that policy communication can be conducted between countries or through the IMF. Because the IMF is responsible for the monitoring of global macroeconomic policies, G20 members are members of the IMF, and China is an important member of the IMF.
In the view of a foreign exchange market trader, the consensus reached by countries to avoid currency competitive devaluation and strengthen policy communication has also provided a “stronger†binding force for central bank monetary policies, so that central banks are adopting monetary easing. Policies need to consider the impact on global financial markets.
"This move has produced good results." He bluntly said that the Bank of Japan has repeatedly warned that it would intervene in the currency market to lower the yen exchange rate, but it has not been put into action. An important reason is that the Bank of Japan is worried that this will cause financial markets to question the competitive devaluation of the yen and damage Japan's international image. This means that the monetary policy coordination of central banks around the world will become more frequent, effectively avoiding the unilateral behavior of a country that has an additional impact on global financial markets.
In this person's view, there is another reason for the G20 to reach a consensus on currency competitive devaluation, which is to “constrain†the expanding quantitative easing monetary policy of some countries. In fact, the increasing proliferation of QE funds has made a big impact on the stability of the global financial market. On the one hand, QE funds continue to expand, making the European and American countries bond markets continue to hit new highs, financial markets have been worried about the growing financial asset bubble; More and more international investment institutions have begun to borrow a large amount of QE funds to expand the scale of leveraged investment, and go to emerging markets to seek high-yield assets to hedge, which inevitably triggers a new round of emerging market countries with large capital risks.
"This also makes the G20 countries begin to pay attention to the lack of tax management in the global cross-border flow of funds, because the lack of tax management makes it easy for global funds to freely enter and exit in a country, destroying the financial stability of the country, which in turn leads to The country’s currency has experienced a sharp abnormal depreciation, which in turn has triggered a competitive devaluation in other countries’ currencies,†he said bluntly. Once the G20 countries strengthen the tax management of cross-border capital flows, to some extent, they will curb the disorderly flow of hundreds of billions of dollars of hot money, and indirectly prevent the abnormal fluctuations in the global currency exchange rate.
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