Canada Rejects Global Financial Overhaul, Currency Intervention

By Theophilos Argitis and Kathleen Hays

Nov. 1 (Bloomberg) -- Canadian Finance Minister Jim Flaherty warned that the world's largest economies shouldn't re-engineer the global financial system, and said the Group of Seven nations hasn't considered intervening in currency markets.

Flaherty, in an interview with Bloomberg Television yesterday in New York, said the best approach is for the G-7 governments to focus first on shoring up their own regulatory frameworks.

``We don't need to recreate the world right now,'' Flaherty said. ``What people expect of us, quite frankly, in our countries is to get our own houses in order.''

The U.S. will host a global economic summit of 20 world leaders in Washington beginning Nov. 14. The agenda will include discussion of the causes of the financial crisis and a review of progress in addressing them.

European leaders have said the crisis justifies major changes in the way financial institutions are regulated. French President Nicolas Sarkozy has said the crisis demands a response like the Bretton Woods conference in New Hampshire in 1944 that fixed exchange rates, hitched the world to the gold standard and created the International Monetary Fund and World Bank.

``In terms of creating a brand new institution at this stage in the middle of a crisis, I think we can spend our efforts more profitably'' strengthening domestic regulations, Flaherty said. ``I don't think it's realistic at this time to expect there will be some grand resolution, some grand scheme.''

Stricter Regulation

The Washington talks, Sarkozy says, should aim to impose stricter regulation on financial institutions, curb bonus packages for bankers and overhaul international accounting rules. U.K. Prime Minister Gordon Brown has said he wants greater cross- border oversight of banks and other financial firms.

Flaherty heads to Brazil next week for a meeting of finance ministers from the Group of 20 nations to set the stage for the Washington meeting. U.S. and European leaders probably won't reach any consensus on what steps to take at this month's meetings, Flaherty said.

The industrialized nations also haven't discussed intervening in foreign exchange markets and there is no ``extraordinary'' reason that would justify buying up his country's falling dollar, Flaherty said.

``We haven't had that discussion, and we don't intervene in our currency, quite frankly,'' Flaherty, 58, said. ``We believe in letting our own currency float.''

`Excessive Volatility'

The Group of Seven countries, which includes Canada and Japan, said in an unscheduled statement this week they were concerned ``about the recent excessive volatility'' in the yen, fueling speculation of interventions in global currency markets. Japanese Finance Minister Shoichi Nakagawa said his country is ready to act in currency markets if necessary.

French Finance Minister Christine Lagarde told Bloomberg Oct. 27 that the statement was aimed at showing G-7 support for a ``purely Japanese intervention.''

Japan's currency appreciated 19 percent against the euro in October on speculation the global economic slump will encourage investors to sell higher-yielding assets and pay back low-cost loans in yen. It was the currency's biggest monthly gain since the euro's introduction in 1999.

The Canadian dollar weakened 11 percent last month, the most since at least 1950, as oil prices fell and concerns mounted that the economy will sink into recession as predicted by three of Canada's five biggest banks.

To contact the reporter on this story: Theophilos Argitis in New York at targitis@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net.