G20 Finance Track underscores importance of international cooperation
The G20 finance ministers and central bank governors have reaffirmed their commitment to international economic and financial cooperation at their two-day meeting in Baden-Baden. Speaking afterwards at a joint press conference with Bundesbank President Jens Weidmann, Federal Finance Minister Wolfgang Schäuble said that, if anything, the meeting had strengthened rather than weakened cooperation among the world's leading industrial and emerging market economies. Germany holds the presidency of the G20 in 2017.
The G20 finance ministers and central bank governors are determined to consult closely on matters such as exchange markets. In their joint Communiqué, they expressed their commitment to refrain from competitive devaluations and to not target their exchange rates for competitive purposes. Excess volatility and disorderly movements in exchange rates, the Communiqué reads, can have adverse implications for economic and financial stability.
In matters of trade, Bundesbank President Jens Weidmann stressed that there had been "very broad support" for open markets. No consensus, however, had been achieved on ways to enhance trade relations, in light of efforts by the United States to recalibrate its trade policy. The wording of the Communiqué reads:
"We are working to strengthen the contribution of trade to our economies." Mr Schäuble said all agreed that global trade contributes to growth both in the worldwide economy and in individual economies.
Mr Weidmann also spoke about the current state of the global economy, noting that the assessment of the economy is more upbeat than at earlier meetings. Participants in Baden-Baden agreed that the global economic recovery is making progress, he said,
"though the pace of growth over the medium-term horizon is still weaker than many would like it to be". Mr Weidmann described how the industrial countries in particular had seen inflation rates pick up significantly.
"The deflationary fears that once loomed over the debate have now dissipated," he remarked.
Mr Weidmann went on to report that participants saw monetary and fiscal policy as already having contributed significantly to strong, sustainable, balanced and inclusive growth. "That's why we all agreed that, in a balanced policy approach alongside those two policy tools, it is now mainly structural reforms that are needed." Mr Weidmann explained how these measures will have a major bearing on the growth opportunities that will remain once monetary and fiscal policy stimuli expire, noting that the Enhanced Structural Reform Agenda adopted under the Chinese presidency of the G20 offered useful guidance.
Principles to foster economic resilience
Economic resilience is a major agenda item for Germany's presidency of the G20. The finance ministers and central bank governors used their Baden-Baden meeting to agree on a set of important principles designed to foster the resilience of national economies. In Mr Weidmann's words, this concerns topics such as sound public finances or a stability-oriented monetary policy and preserving the independence of central banks.
In addition, the topic of shaping digitalisation made its debut appearance on the G20 agenda. According to Mr Weidmann, progress in this area was achieved, with participants expressly advocating a broadly based stock-take, under the direction of the Financial Stability Board (FSB), of key regulatory issues associated with technologically enabled financial innovation (fintech).
"Digitalisation will facilitate access to financial services for many," Mr Weidmann said, adding, however, that this would require a modicum of financial education. This is why the G20, in the light of advancing digitalisation, has also emphasised the importance of financial inclusion and financial literacy. It has been tasked, together with the OECD, to identify measures that can help to effectively enhance financial literacy.
Do not turn back the clock on regulation
At the press conference, the Bundesbank President also highlighted the progress made in implementing the FSB's reform agenda. He said that the next step needed to consist in enhancing the analytical framework for evaluating the effects of reforms, for which the FSB, he added, has developed a structured framework.
"The objective of this evaluation is to obtain robust assessments of the reforms' effectiveness as well as of potential unintended side effects," Mr Weidmann explained. The findings obtained in this manner, he noted, could then help regulators to decide whether adjustments to the reforms were necessary.
"The idea here is not to turn back the clock on regulation," Mr Weidmann emphasised, adding that "it would be, moreover, a grave mistake to undo regulatory provisions on a major scale or even engage in competitive deregulation, which would come at the expense of the resilience of the global financial system."
An important forum
The discussions between the finance ministers and central bank governors also served as preparation for the monetary and financial topics of the annual G20 summit of the heads of state or government in Hamburg on 7 and 8 July. The G20 finance ministers and central bank governors also convene on the margins of the International Monetary Fund's spring and annual meetings, which take place in April and October of each year.
The G20, an informal union comprising the 19 most important industrial countries and emerging markets and the European Union, is the central forum for informal international cooperation. Since its inception in 1999, the G20 has dedicated itself to addressing the challenges facing the international monetary and financial system in an increasingly closely interconnected global economy.