The situation in global financial markets is improving, although volatile market conditions may persist, and China must allow the value of the yuan to rise more quickly, financial officials from the world’s wealthiest countries have announced.
The global economy remains strong, although recent market shocks, high oil prices, and weaknesses in the U.S. real estate market are likely to negatively impact its growth, stated the finance ministers and central bankers of the G7 countries in a statement released after their meeting. Nevertheless, as highlighted, the economic fundamentals remain strong, and emerging markets provide a critical boost to the strength of the global economy.
G7 members want to calm markets, which are experiencing significant fluctuations, but even during their meeting, stock prices plummeted worldwide due to concerns that economic growth is slowing. The dollar exchange rate fell to a new record low against the euro after it became clear to financial markets that G7 members, namely the U.S., Britain, Canada, France, Germany, Italy, and Japan, would not explicitly express concern over the weakness of the greenback. Meanwhile, the price of oil surpassed $90 per barrel.
When financial leaders of the G7 last met six months ago, they stated that it would be desirable for currency exchange rates, particularly the Chinese yuan, to adjust to global trade imbalances. There is indeed concern among the wealthiest countries that a weakening yuan makes Chinese exports cheaper, thereby harming exports from the U.S. and Europe. Their latest statement carries a much sharper tone. “We welcome China’s decision to increase the flexibility of its currency, but in light of the growing surplus in its balance of payments and domestic inflation, we believe it should allow for accelerated appreciation of its effective exchange rate,” the G7 meeting statement reads.
