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G20 meeting leaves falling dollar alone

Section: Daily Dispatches

By Gordon Bell and Natsuko Waki
Sunday, November 18, 2007

KLEINMOND, South Africa -- Finance chiefs from the Group of 20 economic powers agreed on Sunday too much volatility and erratic movements in currencies were unwelcome but stopped short of denouncing recent dollar weakness.

Finance ministers and central bank governors from the G20 were wrapping up their two-day meeting and were due to release a communique at 1130 GMT, which was likely to focus on currency imbalances and the risks to global growth from credit woes stemming from the U.S. subprime mortgage crisis.

The dollar's fall to record lows against a basket of currencies as credit conditions have deteriorated in global financial markets since August has been a factor driving up the price of key commodities, particularly oil, fuelling inflation and putting world economic growth at risk.

French economy minister Christine Lagarde said on Sunday the G20 countries did not want to see too much currency volatility and erratic movements, but laid blame on no particular currency.

"We all concurred that the currency situation is one that needs a joint approach, concerted approach. Clearly we don't want to point the finger at anyone and we want to operate by consensus," Lagarde told reporters.

"You need the right balance and right equilibrium where there is not too much volatility and no erratic movements of currencies and that's what we are interested in."

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, said the fall in the dollar is a move in the right direction, but the euro and Canadian dollar were overly feeling the brunt of the adjustment.

"The view of the IMF is that the move in the dollar depreciation is in the correct direction," he told reporters.

"Some currencies don't move as you would expect, mainly those countries that have large current account surpluses. Some are moving very slowly and some are moving in a bad direction and that is a serious concern," Strauss-Kahn said.

"Another concern is that some countries have on their shoulders a much larger part of the adjustment than they should, the Canadian dollar obviously, and as is the case with the euro ... and the case for the Brazilian currency."

The Canadian dollar hit 130-year highs against the U.S. currency earlier this month.

Canadian Finance Minister Jim Flaherty said on Saturday he had told his G20 colleagues the Canadian dollar had borne a disproportionate share of the fallout from the U.S. dollar's decline, causing problems for the export-reliant economy.

The credit crunch which started in earnest in August has brought greater volatility in global markets and threatened to derail the world economy which was enjoying its best growth in three decades earlier this year.

However, there are few signs that the U.S. economy was taking a material hit from the crunch, with growth accelerating at its fastest pace in the third quarter since early 2006.

Lagarde said the recent market turbulence had affected the U.S. real estate market, but the real impact on the broader economy remained to be seen.

"You listen to (Fed chairman Ben) Bernanke and other officials, and they all concur that fundamentals have not been affected. ... As far as the underlying economy is concerned there doesn't seem to be any effect as a result of the financial crisis," she said.

Canada's central bank governor, David Dodge, said on Saturday that discussions had made it clear the downside risks to world growth had increased.

The G20 also discussed the reform of the International Monetary Fund and World Bank to give emerging economies greater say and voting power at those multilateral organisations.

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