Sunday, February 11, 2007

G7 and Asia

Sources: Boston Globe, Forex Television,

The Asian financial markets have been affected greatly by the most recent round of G7 meetings. Finance ministers and central bank governors met on Friday at their 2-day meetings in Essen, Germany. Market watchers were “turning their attention” as Asian financial markets appeared to be particularly sensitive to the G7 meetings.

Analysts had predicted that China might experience the brunt of G7 criticism since there was a “need for emerging countries to show greater currency flexibility to reduce global economic imbalances.” G7 finance ministers did indeed reiterate their call for increased flexibility in the Chinese regime, but much of the expected criticism was tempered due to the current Chinese fiscal policy. China has agreed to cooperate in making the Chinese yuan more flexible, and the G7 has laid out a list of financial measures (removal of equity caps on foreign financial institutions, for example) to assist in helping China fulfill its commitment.

The buildup to the G7 meetings, however, led to a drop in the Tokyo stock market. In Tokyo, the Nikkei index fell 114.54 points. After the G7 meetings, Japan escaped public criticism, despite some concern about its financial markets. However, this was likely not much of a surprise, as the Yen markets had remained fairly flexible since September. The G7 commended the Japanese economic recovery, and “urged financial markets” to incorporate the continued projected recovery in assessing exchange rates.

Question: How do G7 criticisms and “mandates” affect domestic economic and financial sovereignty? In other words—how does the requirements set forth by the G7 prevent the individual nation states from embarking upon an independent fiscal policy?

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