Forex Investment and Currency Trading

A greater emphasis on partnership rather than confrontation Whereas previous G7 statements have seemed confrontational on the issue of exchange rates, the Communiqué of 14th February appeared to emphasise solidarity at a challenging time. We compare below the February 2009 and October 2008 Communiqué, focusing specifically on the section on exchange rates. The bolded section reflects a change from the previous Communiqué:

“In particular, we welcome China’s fiscal measures and continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi in effective terms and help promote more balanced growth in China and in the world economy. “We reaffirm our shared interest in a strong and stable international financial system. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate.”

This compares to the G7 October 2008 Communiqué: “We reaffirm our shared interest in a strong and stable international financial system. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange rate markets closely and cooperate as appropriate. “Given China’s important role in the global economy, we encourage the authorities to allow accelerated appreciation of the RMB effective exchange rate as a means of further rebalancing of the domestic economy and promoting external stability.”

While there is continued focus on China in the G7 Communiqué, it significantly toned down – and deliberately so. There is no longer any reference to “encouraging China” to “accelerate” CNY effective exchange rate gains. Moreover, this time, there is greater focus on China’s efforts to promote its domestic economy, the presumption being that eventually this should lead to more balanced global growth and further CNY NEER gains. It would seem clear that the timeframe for CNY NEER appreciation has been put back. In our view, this change in rhetoric should be reasonably well received in Beijing. It may not be exactly the wording they wanted, but it represents an important improvement.