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Spillover effects of monetary policy should be minimized

(People's Daily Online)

13:27, February 18, 2013

The G20 Finance Ministers and Central Bank Governors' Meeting in Moscow concluded on Feb. 16 with a joint communiqué that included 26 consensuses on issues including global economy and the G20 framework for strong, sustainable, and balanced growth, long-term financing for investment, reform of the international financial architecture, financial regulation, and energy, commodities, and climate finance. The Chinese delegation to the meeting was led by Finance Minister Xie Xuren and Governor of the People’s Bank of China Zhou Xiaochuan.

According to the joint communiqué, tail risks to the global economy have receded, and financial market conditions have improved. However, global growth is still too weak, and major risks and challenges remain, including macroeconomic policy uncertainty in developed countries, private deleveraging, impaired credit intermediation, and incomplete rebalancing of global demand.

To address current challenges, developed countries should develop credible medium-term fiscal consolidation plans. Monetary policy should be directed toward domestic price stability and economic recovery, and its negative spillover effects on other countries should be minimized. The G20 members should continue to implement their financial and structural reform commitments, promote global demand rebalancing and economic recovery, and move more rapidly toward more market-determined exchange rate systems.

As for the international financial system reform that most countries, particularly emerging market countries, are highly interested in, the communiqué stressed the importance of long-term financing for investment to economic growth and job creation, and the G20 members agreed to establish a new study group on financing for investment.

They reaffirmed the urgent need to ratify the 2010 International Monetary Fund (IMF) Quota and Governance Reform, and called for an agreement on the quota formula and completion of the General Quota Review by January 2014. They remain committed to the full and timely implementation of financial sector reforms, and urged all jurisdictions to implement Basel III as soon as possible. In the tax area, they are determined to develop measures to address base erosion and profit shifting, and continue to enhance tax transparency and information exchange.

The communiqué noted that the IMF members should strengthen efforts to reach an agreement on the quota formula and complete the General Quota Review by January 2014.

Zhou noted at the meeting that the Chinese government has been committed to adjusting the economic structure and expanding domestic demand. Its policies have yielded significant results, and contributed greatly to global rebalancing. The key to future rebalancing of global demand lies in faster structural reforms, particularly labor market reforms, for greater competitiveness. Related countries should also introduce medium-term fiscal consolidation plans and reduce policy uncertainty in order to spur private sector demand and promote economic recovery.

Zhou called on the G20 members to find the underlying causes of great differences in different countries’ savings levels as well as effective ways of translating savings into long-term investment. Furthermore, he called on related countries to implement the IMF Quota and Governance Reform as soon as possible, and ensure timely completion of the IMF’s 15th General Quota Review. He also hoped the IMF to strengthen oversight and regulation of related countries’ fiscal and monetary policies as well as their spillover effects.

Read the Chinese version at: 货币政策应减少负面溢出效应, Source: People's Daily, Author: Zhang Xiaodong and Lin Xuedan

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