Yellen Sees Some Use For Forex Intervention, But Not For Competitive Advantage

NUSA DUA, Indonesia (Reuters) – Emerging markets and low-income countries can benefit in some cases from capital flow management and foreign exchange intervention, but should not use these tools to gain a unfair competitive advantage or delaying balance of payments adjustments, the US Treasury said. Secretary Janet Yellen said Friday.

Yellen told finance officials from the Group of 20 major economies that Russia’s war in Ukraine was exacerbating inflation and hurting government fiscal positions, while triggering more volatile capital flows at a time when many countries are struggling. were still recovering from the COVID-19 pandemic.

Tighter financial conditions triggered an outflow of portfolio investment from emerging markets, Yellen said, noting that it was essential for countries to maintain or strengthen policy frameworks to manage associated risks.

She said the International Monetary Fund’s new integrated policy framework released in March could help countries analyze their policy options and trade-offs, and enabled a broader set of policy tools to help countries achieve their goals. nationals.

This meant that emerging markets and low-income countries could benefit, in certain circumstances, from capital flow management and foreign exchange interventions, alongside monetary, fiscal and macroprudential policies.

But Yellen, who often stresses the need for market-based exchange rates, said there were limits to using such tools.

“For example, it remains important that foreign exchange intervention is not used to create an unfair competitive advantage or delay necessary balance of payments adjustments,” she said.

(Reporting by Andrea Shalal; Editing by Ed Davies)

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