Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Shanghai to Hangzhou: Does G20 run monetary policy?

After the G20 Summit in Shanghai in February 2016, there was a widespread belief that the G20 secretly instituted a “Plaza Accord” agreement to stem the rise of the U.S. dollar primarily by using monetary policy. We do not know whether there was such an accord or not, but we do know that post Shanghai, the ECB and the BOJ signalled a reduction in monetary easing and the US took a break from monetary tightening causing the Trade Weighted Dollar to drop by over 5%. A Google search for “G20 Shanghai Plaza Accord” returns nearly 10,000 results.

The aftermath of the G20 summit in Hangzhou earlier this month adds to the suspicion that monetary coordination happens at G20 summits. The markets now fear that we are on the verge of a coordinated tightening – the ECB disappointed expectations on continuation of QE, the BOJ started having doubts about negative interest rates, and the US Fed is sounding more hawkish than it has in recent months.

I am reminded of the Chicago saying from the Goldfinger film in the James Bond series: “Once is happenstance. Twice is coincidence. The third time it’s enemy action.”

We are still at the coincidence stage of this progression and it will take another G20 summit for us to start wondering whether the omnipotent “independent” central banks are just pawns in the hands of the G20 leaders.


2 responses to “Shanghai to Hangzhou: Does G20 run monetary policy?

  1. Anantha Nageswaran September 10, 2016 at 2:55 pm

    I sincerely hope you are right, Prof .Varma although my head tells me that this is unlikely. It can be the case only if the G3 – US, Europe and Japan – have decided that they have had enough of China and that they need to put that country in its place. If you recall, Xinhua wrote an Edit on Aug. 27 – the day after Ms. Yellen spoke at Jackson Hole – beseeching (well, almost demanding) the Federal Reserve not to raise interest rates.

  2. suhanisahani September 14, 2016 at 6:12 pm

    Shares of Coal India dropped 2.5% to Rs323.20 on BSE after the coal majors Q1FY17 cons net profit came down by 14.8% YoY

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