L'AQUILA, Italy (AP) — Leaders of rich and developing nations meeting here have agreed not to resort to currency devaluation to gain a competitive advantage — while shying away from any discussion of the dollar's status as the world's reserve currency.
"We will refrain from competitive devaluations of our currencies and promote a stable and well functioning international monetary system," the leaders said in a draft joint declaration entitled 'promoting the global agenda,' obtained by The Associated Press.
One of the reasons often cited as to why the 1930s Great Depression lasted so long was that countries acted independently to protect their own interest by undermining their currencies. A cheaper currency boosts exports.
Christine Lagarde, France's finance minister, for one was particularly vocal earlier this year about how Britain was gaining an advantage by doing nothing to stem the sharp fall in the pound against the euro.
Though the dollar was not mentioned in the draft declaration, its future as the world's reserve currency is likely to remain a topic for debate over the coming months or years, as China, Russia and India have expressed their desire to see long-term changes in the international monetary system.
But they have been careful to not push their desire for change too far — in case the dollar slumps and the value of their large dollar-denominated investments plummet.
China said its officials raised the issue here at a working lunch on Thursday lunch, but British Prime Minister Gordon Brown said he could not recall a discussion about it and that it was not on the formal agenda.
"There was not a serious discussion about this," Brown told reporters. "In this present situation as we're trying to get out of a deep recession, I don't want to give the impression that there's some major change about to happen round the corner that suggests that the present arrangements are destabilized."
White House press secretary Robert Gibbs said that the dollar was not brought up in bilateral talks on Thursday with U.S. President Barack Obama and Brazil President Luiz Inacio Lula da Silva despite a lengthy conversation on the economy.
"I think that despite whatever talk you might hear, I don't see that there's any movement away from the notion of the dollar being that currency," Gibbs told reporters.
Stephen Lewis, chief economist at Monument Securities, said that it was not surprising that the reserve currency issue had dropped off the agenda with the departure of Chinese President Hu Jintao, who cut short a trip to Italy after violence in the capital of western Xinjiang on Wednesday after ethnic riots left at least 156 dead.
"Nobody else seems to really have a problem with the U.S. as the standard," Lewis said. "The exchange rate is nothing outrageous for any of the nations. ... If they start talking about it in public, it could trigger market panic, so as long as they know that they can't reach an agreement they will spend time talking about other issues."
A sliding dollar would be bad for global growth as it introduces uncertainty into the financial markets and would raise the prices of commodities, such as oil, that are priced in dollars. It would also make it far more difficult for the U.S. to fund its deficits as investors would be wary of buying up U.S. Treasury debt.
The Group of Eight industrialized nations of Canada, Britain, France, Germany, Italy, Japan, Russia and the United States on Thursday opened their annual summit to Brazil, China, India, Mexico and South Africa, as well as Egypt.
AP reporters Charles Babington in L'Aquila and Michael Bushnell in London contributed to this report.