By Richard Johnstone | 20 February 2014
UK Chancellor George Osborne has hit back at claims from emerging countries that tightening monetary policy in developed nations has reduced growth across the globe.
Speaking today in Hong Kong ahead of this weekend’s G20 meeting of finance ministers and central bank governors in Australia, Osborne said there was a need to end the ‘pointless debate’ over global monetary policy.
South African finance minister Pravin Gordhan has been among those who have said the US Federal Reserve’s decision to start tapering its quantitative easing bond buying was increasing turbulence in emerging economies. Gordhan called on the Fed to do more to take account of the impact its decisions are having on emerging markets.
However, Osborne said the G20 meeting must not descend into a ‘blame game’ over the impact of Western monetary policy on emerging markets.
‘There is a danger that in Sydney and other such meetings we find ourselves distracted by a pointless debate about US and UK monetary policy, that the G20 descends into a blame game, and we miss the opportunity to drive through, together, the reforms that are necessary to safeguard the global recovery,’ he said.
While acknowledging that it was tempting for some countries to blame Western monetary policy for economic problems, this was not accurate.
‘[It is] not accurate because, while tapering of US monetary policy in response to a strengthening domestic recovery may have been the trigger for instability it is not the real cause.
‘The underlying causes are domestic fragility in those countries, often built up over a long period of time – and that is why some emerging markets have been much more affected than others. And blaming Western monetary policy is not useful because it doesn’t lead us to any sensible solutions.’
The Federal Reserve should not set monetary policy to be appropriate for emerging markets, Osborne said, and people in the UK would be ‘rightly outraged’ if the Bank of England set monetary policy based on what was best for other countries.
‘The Fed has a legal and democratic requirement to set monetary policy to be appropriate for the US economy,’ he said.
‘The fact that it is currently tapering its programme of quantitative easing is a sign of success.’
What was needed was for individual nations to put their own ‘houses in order’, through building domestic resilience, he said.
‘The alternative is to use the G20 to hold governments accountable for these domestic reforms, rather than allowing them to escape accountability by blaming their problems on others.’
Osborne announced that the UK would therefore back a plan set out by Australian finance minister Joe Hockey to require all G20 members to sign up to national reform agendas, which they would then be held accountable for by other members of the economic group.
‘That is exactly the right approach because it tackles the underlying problems head-on. I’m ready for the UK to play its part and I hope this approach is adopted by the G20 later this year.’
