Global Biz

Eurogroup: Exchange rate volatility harms global economy

(Xinhua)
Updated: 2010-10-19 10:57

LUXEMBOURG - Excessive volatility in the exchange rates could harm global economy, the Eurogroup chief said on Monday as the euro touched a nearly nine-month high against the US dollar recently.

"We did talk about exchange rate situation," Luxembourg Prime Minister Jean-Claude Juncker said after chairing a monthly meeting of eurozone finance ministers. "It is important that exchange rates should reflect economic fundamentals."

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The US dollar had weakened against major currencies in the past weeks, fueling concerns that world governments may resort to a depreciation of their currencies for the good of exports.

The euro climbed to $1.4161 on Friday, the highest level since late January, after Federal Reserve Chairman Ben Bernanke indicated additional monetary policy action, which analysts said may further weakening the value of the greenback.

It was traded under $1.29 in early September.

"Excessive volatility and disordered currency movements which we have observed in the previous weeks do have negative effects on economic and financial stability on a global scale," Juncker said.

With a weakening dollar in prospect, currencies of the emerging economies were pushed up by large inflow of hot money. This is posing a danger to economic growth of those countries since their exports would get hurt.

Juncker said the eurozone would continue to carefully watch developments of exchange rates, calling for cooperation in appropriate ways among major currencies.

He also urged the emerging economies to carry out reforms to improve flexibility of their exchange rates.