The summit stopped the devaluation race

The dollar can celebrate victory. Participants in the Big Eight summit decided to refuse to depreciate their own national currencies by concluding an agreement not to apply the “competitive devaluation of currencies”.

The leaders of the big eight, as well as the leaders of the five developing countries, agreed to avoid the “competitive devaluation of the currencies”, which in practice means the depreciation of national money. The preliminary agreement on this was concluded during the summit in the Italian city of Akvil. Participants plan to publish the full text of the document later, reports Bloomberg. In addition, the leaders also came to a consensus that it is necessary to "maintain the stability and functionality of the international foreign exchange system."

See also

The G5 countries include China, Mexico, India, Brazil and South Africa.
The G8 list includes the USA, Japan, Germany, France, Italy, Great Britain, Canada and Russia.

The need for devaluation, as a rule, occurs during a period of strong fluctuations in the currency, which has the status of the world reserve. Today, such a currency is the dollar. For example, if the dollar is very weakened, then this will mean that all other currencies will strengthen in relation to the dollar. As a result, in such countries, prices for goods counted in dollars will increase, which means that the competitiveness of these countries will decrease.

“If any of the countries in this situation wants to get a large market share, then it, weakening its currency, will be able to get an advantage in this way,” explains Natalya Orlova, the chief economist Alpha Bank. According to the expert, the reverse side of such practice is the export of unemployment: the country that conducts competitive devaluation exports unemployment to other countries, as it retains its national economy at the expense of others.

It was against this practice that the summit participants opposed. However, the first thing to do to avoid competitive devaluation is to stabilize the dollar. “I think that no one is interested in either a great fortification or in devaluation - everyone is interested in being a certain predictability,” says Natalya Orlova. According to the expert, the greatest question raises how political leaders, in whose countries unemployment is growing and the rates of economic growth are being reduced, will try to maintain the world economy in the current form, while at the same time observing national interests. ”

Recall that the last large -scale devaluation in Russia was held by the Bank of Russia at the end of last year. As a result, for the fourth quarter of 2008 and the first quarter of 2009, the ruble fell to the dollar by 34%. These measures contributed to the support of domestic exports.

Long -term goals

“In the long run, we must think about a single financial tool for calculations - for example, such as special rights to borrowing the IMF, which are based on a basket of currencies,” Dmitry Medvedev President Dmitry Medvedev shared plans with Corriere Della Sera. “We cannot be hostages of the economic situation in one country, as happened today with the United States,” he emphasized.

The fact that the dollar ceases to meet the requirements of the world reserve currency was said at the end of last week and adviser to the Prime Minister of India Suresh Tendulkar. “Most of India reserves are stored in dollars - and this is a big problem for us,” he emphasized.

Previously on the topic

Meanwhile, during the G8 summit, the leaders of developing countries (G5) came to the conclusion that for now, not a single country will succeed in suppressing the dollar. The only attempt to weaken the effect of the dollar is to increase the volume of bilateral trade operations in national currencies. According to the Minister of Foreign Affairs of India Shivshankar Menon, "everyone clearly realizes that the idea of creating a new reserve currency is a very distant goal."