Financial Regulatory Forum

G20 to talk currencies, ‘moral hazard’ – Canada

By Reuters Staff
November 3, 2009

TORONTO, Nov 2 (Reuters) – The G20 finance ministers and central bankers meeting this weekend will discuss foreign exchange rates and the perils of designating some banks as “too big to fail,” Canadian Finance Minister Jim Flaherty said on Monday.

“We usually have some discussion about the currencies in the world, the downward pressure on the U.S. dollar, the relative inflexibility of some of the Asian currencies, so I expect it’s going to come up,” he told reporters when asked if the Group of 20 ministers would discuss foreign exchange concerns at a meeting in Scotland on Nov 6-7.Other sources in the G20 said on Monday that foreign exchange rates were not expected to be a major topic at the meeting, but said the issue may be discussed in relation to rebalancing the world economy.

European officials have complained over the last few months that the strength of the euro against the dollar is hurting the euro zone economy.

Canadian policy makers have also expressed concern about the strong rise in the Canadian dollar, saying it would delay by one quarter the economy’s return to full capacity. Flaherty said last week he was relieved with the currency’s pullback from recent highs.

Canada appears keen for the G20 to discuss “moral hazard” in the global banking system, referring to players that may still be taking risks on the assumption authorities can always bail them out.

“I know we’re going to have some discussion about this whole issue of financial institutions that are so-called too big to fail. We need to talk more about that. We don’t want to create moral hazard in the financial systems around the world,” he said.

Bank of Canada Governor Mark Carney also raised that issue last week, saying it would be a mistake to underestimate the determination of G20 leaders to reshape the financial system.

Carney said that risks must be returned to, and borne by, the private sector and warned the current system was awash in moral hazard.
(Reporting by Frank Pingue and Louise Egan; editing by Rob Wilson) ((louise.egan@thomsonreuters.com; +1 613 235-6745; Reuters Messaging: louise.egan.reuters.com@reuters.net)) Keywords: G20/CANADA

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