Recent market volatility in China will top the agenda as bank chiefs and finance ministers convene in Ankara, Turkey, to discuss how to soothe the global economy. They may also discuss the prospect of a US Federal Reserve rate hike.
Investors around the world have been on tenterhooks ever since a recent plunge in Chinese stocks triggered spending frenzies and called the strength of the globe’s second-largest economy into question.
Adding to their worries is the prospect of an interest rate hike by the US Federal Reserve, which has hinted that the US economy could handle higher costs for borrowing because it is faring much better than when rates were lowered.
That, in turn, is cause for worry for some emerging economies, who have been pushing for the Fed to hold off on readjusting its monetary policy. There had also been speculation that the drafters of the G20 communique that will be issued at the end of the group’s two-day meeting in Ankara, Turkey, could include a clause describing a possible rate hike as a serious risk to global markets.
Rather not rock the boat
But now a diplomatic source, quoted by news agencies, has said the G20 won’t publicly call for any such delay.
Instead, when the finance ministers and central bank chiefs of the world’s 20 leading economies meet Friday and Saturday in Ankara, their joint declaration will contain broader language welcoming measures to stabilize economies and reduce volatility, the source said.
Developing countries had pushed for a specific warning for the Fed not to raise interest rates. Many fear such a move, which is likely to happen by the end of the year, could spur capital flight as investors move their cash to the US to benefit from higher rates.
German Finance Minister Wolfgang Schäuble said the meeting would focus “more intensively” on China in light of nervousness after Chinese markets’ tumble in recent weeks.
“We will also listen attentively to how the Chinese authorities see this themselves,” he said.
Reflecting the balance of power
But the influential minister has long called for an end to policies of cheap money – putting himself at odds with the representatives of the G20’s developing countries, including China.
“I believe we don’t have too little liquidity in the markets and also don’t have too much debt, but rather we have the danger that a bubble may form,” Schäuble said.
Schäuble also said the ministers would discuss assessments of the global financial situation by institutions such as the International Monetary Fund. China is currently lobbying the IMF to add the renminbi to its basket of currencies – of dollar, euro, pound and yen – which would both give it prestige and reflect the importance of what is now the world’s No. 2 economy.
Here, a positive signal came from Jens Weidmann, the President of Germany’s Bundesbank, who said: “The basket should, in principle, reflect the balance of power of the world economy.”