Currency Intervention Isn’t Trade Tool, Subbarao Says
April 16, 2011, 5:15 PM EDTBy Shobhana Chandra
(Updates with comment on growth in fourth paragraph.)
April 16 (Bloomberg) -- Countries should not use currency intervention as a part of trade policy, and should allow economic fundamentals to dictate exchange rates, said Duvvuri Subbarao, governor of India’s central bank.
“Letting exchange rates remain aligned with economic fundamentals, and an agreement that currency interventions should not be resorted to as an instrument of trade policy should be central to a coordinated approach at a multilateral level,” Subbarao, who is chief of the Reserve Bank of India, said today in the text of a speech to the International Monetary and Financial Committee in Washington.
The comments are part of a weekend of meetings during which Group of 20 nations officials outlined methods to decide when indicators, including budget deficits and external trade balances, appear excessive. India is among the seven countries targeted for further study.
The global recovery may be “jeopardized” by a sustained rise in oil prices, and food-supply constraints are also causing volatility in prices, Subbarao said in a separate statement to the IMFC, the steering committee of the IMF.
Regarding capital flows into developing economies, Subbarao said that managing such flows “should not be treated as an exclusive problem of emerging market economies.” While growth prospects of emerging markets and their declining rates of inflation are helping to pull in capital, advanced economies are also pushing capital flows with “easy monetary policies,” he said.
Countries must collectively work to stem protectionism and resist the short-term pressures that are likely to grow in coming years, Subbarao said. “Covert protectionism has been on the rise,” he said in the speech.
The challenges of a single reserve currency for the world have become apparent, and while a solution must be developed, the Special Drawing Rights don’t yet satisfy the conditions for an alternative, Subbarao said. “We see the move to a multicurrency world as a gradual evolution,” he said.
--Editors: Scott Lanman, Paul Badertscher
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
