World Economy

G20 Ministers Focus on Ultra-Loose Monetary Policies

German Finance Minister (L) and Chinese Minister of Finance attend a G20 press conference in Washington, D.C.German Finance Minister (L) and Chinese Minister of Finance attend a G20 press conference in Washington, D.C.

Finance ministers from the world’s top economies debated global economic risks and the potential impact that ultra-loose monetary policies have on banks’ profits, a senior Japanese finance ministry official said Saturday.

The G20 gathering in Washington did not discuss currency moves, the impact of Britain’s decision to leave the European Union or the financial state of Deutsche Bank, said Masatsugu Asakawa, Japan’s vice finance minister for international affairs, Reuters reported.

“The impact of Brexit (on the global economy) must be watched from a medium- to long-term perspective,” he told reporters, when asked about the sterling’s recent plunge.

Weak global trade and the need for bolder steps to boost investment featured high at Thursday’s G20 working dinner, with some finance leaders voicing concern that growing protectionist sentiment may be hurting trade, Asakawa said.

“The general understanding was that the global economy continues to grow moderately but there are various risks, including political ones,” he said.

The G20 finance leaders also discussed the pros and cons of the ultra-loose monetary policies undertaken by advanced economies, with some pointing to the damage very low borrowing costs could inflict on bank profits, Asakawa said.

But there was some debate on whether ultra-easy monetary policy alone was to be blamed for low bank profits, he added.

Anti-Globalization Foes

The ministers warned that populist politicians playing up anti-globalization and anti-free trade sentiments were putting the global economy at risk.

The grouping of 20 economic powers suggested that the forces that have put Republican Donald Trump within reach of the US presidency and led to Britain's vote to leave the European Union could stall already frail global growth.

While not mentioning Trump or other politicians by name, China's Finance Minister Lou Jiwei, speaking on behalf of the G20, identified such voter-luring populism as one of the largest threats to the economy.

"This trend of deep anti-globalization populism has driven politicians to come up with their campaign slogans and try to win the votes and support. That has brought us uncertainty," Lou said.

"We need to recognize some political risks such as the presidential election in some countries and in major economies," he added.

Populist Currents

Lou's comments came as the US presidential race entered its final weeks with upstart Trump wielding potent anti-immigration, anti-free trade rhetoric in his battle with Democratic rival Hillary Clinton.

But also in the background are the populist currents in Europe behind the Brexit vote and those affecting the coming French and German elections.

In both regions, politicians have made gains touting their opposition to the ambitious transatlantic and transpacific free trade deals, known respectively as the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, potent vote-getters among people worried the deals will cost jobs.

The trend has worried the leaders of the world's largest development institutions, IMF Managing Director Christine Lagarde and World Bank President Jim Yong Kim.

Lagarde said that with the world economy growing at a "sub-par" 3.1% this year, now is not the time to be erecting trade barriers.

"Trade has become a political football," she said Friday.

Inequality Worsening

Kim urged world governments to banish "the storm clouds of isolationism and protectionism," saying that open borders had lifted a billion people out of poverty in over a quarter century.

Few of the powerful economic decision makers in Washington would speak openly about Trump, though he was clearly a key worry.

Pierre Moscovici, the EU economic affairs commissioner, took the issue head on, saying that, in the US election, Trump "is not the most reassuring choice from an economic point of view."

And speaking at a conference on the fringes of the IMF-World Bank meetings, the head of the Institute of International Finance global banking association said the populist rhetoric was impacting markets.

At the same time, all the officials acknowledged that, as politicians like Trump have been arguing, globalization has hurt certain populations and in some cases exacerbated inequality.

"Our research shows that inequality is still far too high, both globally and within countries, constraining growth and breeding instability," Kim said Thursday.

"We need to focus on growth and continue to reduce inequality—and we have to make growth more equitable, and more sustainable."

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