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 Slower growth in China and rising market volatility have boosted the
risks to the global economy, the International Monetary Fund warned
ahead of the G20 meeting, citing a mix of potential dangers such as
depreciating emerging market currencies and tumbling commodity
prices.
Finance ministers and central bankers from the Group of 20 leading
economies will be pressing for more on China's plans to tackle its
slowdown, amid emerging market concern that a U.S. rate hike on top
of the Chinese turmoil would pile on extra pressure, delegates at
the meeting in Ankara said.
"The focus is going to be on how to deal with the instability and
how to get growth going again," Canadian Finance Minister Joe Oliver
told Reuters as the two-day meeting got underway.
But the G20 is unlikely to come up with any concrete new measures
designed to address the spillover from the instability in the
world's second-largest economy, or to call directly on Beijing to
address structural issues such as rising bad debts.
Nor is it likely to pressure the Fed to delay its expected rate
hikes, despite unease in some emerging markets that such moves could
cause capital outflows and currency volatility.
"We cannot live all the time on easy money," Luxembourg Finance
Minister Pierre Gramegna, whose country holds the rotating
presidency of the European Union, told Reuters.
"The decision of the Fed will be influenced by many factors inside
and outside the U.S. ... This G20 comes at a very good time because
it gives the Fed an opportunity to gauge all the elements at stake,"
he said.
"One has to be realistic that at one point in time the curve of
interest rates will have to change."
One G20 source said the wording of the communique would probably not
go beyond a general caution to central banks to bear in mind the
consequences of any shifts in monetary policy.
"There will be no open demand to the Fed to act," the source told
Reuters.
YUAN AS RESERVE CURRENCY
One concrete move being examined at the Ankara meetings is a
proposal from a group of financial stability experts to adopt a
two-stage approach for introducing Total Loss Absorption Capacity (TLAC)
buffers for big banks, a G20 source said.
The buffer is a new layer of debt the world's biggest banks like
Goldman Sachs <GS.N> and Deutsche Bank AG <DBGKn.DE> must issue to
write down in a crisis and bolster their capital situation.
The proposal, which is under discussion in Ankara but on which a
final decision is unlikely before a G20 summit in November, would
see the introduction of a buffer of 16 percent of a bank's
risk-weighted assets from 2019 and 20 percent from 2022, the source
said.
The United States had pushed for 20 percent, while some in Europe
had been arguing for 16 percent on the grounds that their banks were
still recapitalizing after the financial crisis.
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Delegates said the G20 was not expected to pronounce on China's
desire to have its yuan currency included in the International
Monetary Fund's Special Drawing Rights basket of currencies, but the
issue could well be discussed in the corridors.
Beijing is keen for the symbolic boost it would get from the yuan's
inclusion.
Bundesbank chief Jens Weidmann said he is open to discussion on
including the yuan in the IMF's benchmark currency basket, and said
recent financial turmoil in China should not pose a lasting danger
to the global economy.
"The currency basket should in principle reflect relative global
economic strengths," he told Reuters, but added that China must
fulfill the conditions for inclusion.
Gramegna also said the EU would welcome the inclusion of the yuan in
the IMF basket, provided Beijing meets a series of technical, legal
and market conditions.
"It is a fact that the renminbi has become a reserve currency in
many ways ... so it is in the interest of the SDR, and the IMF, and
the world, that this important currency finds its way into the SDR,"
he said.
One delegate said it was possible that the likely failure of the
U.S. Congress to approve an IMF quota reform that would give China
and other emerging markets more say could well work in Beijing's
favor on the SDR issue.
The reasoning goes that benefiting the leading emerging country,
China, could help offset the perennial failure to boost emerging
market quotas.
However, IMF members will also be examining whether China's heavy
intervention in the yuan market was befitting of a freely
convertible reserve currency, the delegate said.
One option being floated was the idea of giving China a more limited
share of the SDR basket at first until its convertibility and market
orientation improved.
(Additional reporting by Gernot Heller; Writing by Nick Tattersall
Editing by Jeremy Gaunt)
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