IMF warns ministers against currency war
Washington, October 9, 2010
The head of the International Monetary Fund (IMF) has urged global finance ministers to stop trying to manipulate their currencies for economic advantage and instead to join together to save a fragile recovery.
The global economy is still struggling to emerge from the worst recession since the end of the Second World War, IMF managing director Dominique Strauss-Kahn was quoted as saying in our sister publication, the Gulf Daily News.
Unless the pace of job growth quickens, he said, "we really face the risk of a lost generation" of young people unable to get work.
Strauss-Kahn's remarks came as finance ministers from around the world gathered for the annual meetings of the 187-nation IMF and the World Bank.
"We are gathering at a pivotal moment facing a very uncertain future," Strauss-Kahn said.
"Growth is coming back but we all know that it is fragile and uneven," he said.
Strauss-Kahn said he saw a particular threat to the recovery from a breakdown in co-operation among nations, emphasised by growing talk of currency wars.
In recent days, the Obama administration has increased pressure on China to allow its currency to rise in value against the dollar as a way to boost US exports.
Various other nations, including Japan, Brazil and South Korea, also have taken steps to keep their currencies weaker in an effort to increase their exports.
Finance ministers from the Group of 20 nations, who met over breakfast, sought to highlight the need for countries that enjoy trade surpluses, like China, to spend more at home so indebted ones, like the US, can save without risking a still-fragile global recovery.
"I'm not in the mind or in the mood for war, this is totally inadequate, inappropriate and unnecessary," French Finance Minister Christine Lagarde said.
US Treasury Secretary Timothy Geithner urged the IMF to step up to the task of global overseer and it seemed finance chiefs were working towards giving the Fund a redefined role, possibly by the time G20 political leaders meet in Korea in November.
"It is ultimately the responsibility of countries to act, but the IMF must speak out effectively about challenges and marshal support for action," he said.
Taking a jab at China, he complained that foreign exchange intervention by countries trying to keep undervalued currencies from appreciating was threatening the global recovery.
China, the target of ire from many countries because of a belief that it has kept its yuan deeply undervalued for trade advantage, pushed back by saying that it will move ahead with exchange-rate reforms at its own pace.
"We still think China needs a market-based exchange rate regime," China's central bank governor Zhou Xiaochuan said.
"I think the difference is that for China, we view it as gradualism, a gradual way, rather than shock therapy."
Canadian Finance Minister Jim Flaherty said it was vital G20 countries not engage in protectionist measures, but he also said China must meet its commitment to let the yuan rise.
He expressed hope officials over the weekend could find a way through the thicket of currency tensions. "I would expect that we'd arrive at a consensus with respect to the necessary direction," he said.
Brazilian Finance Minister Guido Mantega also was optimistic officials could sidestep a currency battle.
"I think in the G20 meetings we can arrive at an agreement something like the Plaza Accord," he said, referring to a 1985 agreement among five countries to push the dollar's value down.
"I think we can achieve agreement about how to manage the appreciation of currencies in the G20 meetings."
Other officials played down the idea of an agreement targeted at foreign exchange specifically, stressing that countries should let market forces determine currency values depending on the relative strengths of economies.
"We are discussing what kind of policy measures are needed to rebalance global growth and the currency issue is certainly one of those," European Union's economic and monetary affairs commissioner Olli Rehn said.
G20 nations have committed to a process in which the IMF helps them co-ordinate on policies to rebalance global growth, but co-operation has frayed because of currency tensions. – TradeArabia News Service