The Weak Dollar Likely to Be High on the Agenda at the Meeting of the Finance Ministers of the Group of 20 This Weekend

The weak dollar is likely to be high on the agenda at the meeting of the finance ministers and central bankers of the Group of 20 in Berlin this coming weekend, and it is likely to engender a debate over exchange rate policies. The members of the Group of 20 are the finance ministries and central bankers of Argentina, Australia, Brazil, Canada*, China, France*, Germany*, India, Indonesia, Italy*, Japan*, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.K*, the U.S* and the European Union, represented by the Council presidency and European Central Bank.Exchange rate policies differ widely among the countries of the group, with the industrial countries generally favoring floating rates and most of the emerging markets favoring fixed exchange rates.

The diversity of exchange rate policies has resulted in a major realignment of currencies over the past couple of years. While the trade weighted dollar has declined some 13% from its recent peak of February, 2002, the euro has appreciated by more than 40% and the Canadian and Australian dollars have appreciated more than 25%. In contrast to these movements, Asian currencies, except for Japanese yen and Korean won, have shown little or no appreciation. The attached chart highlights the diverse movement of the euro and the Taiwan dollar that is taken to be representative of the trends in non Japanese and non Korean Asian countries.
Note: * countries form the Group of 7.