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Thursday, 30 September 2010

Global ‘currency war’? G7 meets on 'international currency war' !

IMF chief sees no risk of a global ‘currency war’

Currencies to be discussed at IMF and G20 meetings

WASHINGTON: International Monetary Fund (IMF) chief Dominique Strauss-Kahn said on Tuesday he did not see a risk of a global ‘currency war’ as countries intervened to weaken their currencies but acknowledged it was a concern.

The IMF managing director said efforts by countries to devalue their currencies would be discussed at meetings of the IMF in Washington on Oct 8-9 and the Group of 20 (G20) major economies in South Korea in November.

“There has been a rising concern in recent days about this question,” Strauss-Kahn said. “I don’t feel today there is a big risk of currency war despite what has been written.”

His comments came as more governments around the world move to keep their currencies from appreciating to boost exports and improve trade balances. Japan intervened for the first time in six years on Sept 15 to prevent the yen from worsening a faltering recovery. Colombia and Thailand have made similar moves.

Brazilian Finance Minister Guido Mantega on Monday said the world was in an “international currency war”, as governments manipulate their currencies to improve their competitiveness.

Speaking in general terms, Strauss-Kahn said history had shown that such interventions did not have a lasting impact and the IMF preferred that market forces be left to determine exchange rate values.

“The core of the question is this the kind of solution that we can provide to the global situation or not? The answer is no,” he said, adding, “clearly it is not a global solution”.

Strauss-Kahn said since the world financial and economic crisis had eased, cooperation among major economies “has not been as strong as it was before”. “Most countries have a tendency of going back to their problems,” he said. The IMF chief said the world recovery was “still very fragile” and the major issue for policymakers was whether growth was strong enough to reduce high unemployment. “It will be difficult to say that the crisis is over before unemployment is decreasing,” Strauss-Kahn said.

He said the IMF leaned on the “optimistic side” when it came to the economic recovery in the United States. He repeated that the IMF did not see the risk of a double-dip recession although he noted the US recovery had clearly slowed.

The IMF releases updated forecasts for the world economy next Wednesday. Earlier on Tuesday the fund’s No 2 official, John Lipsky, said the global recovery would remain sluggish into early 2011.

Strauss-Kahn said the recovery in Europe “is not strong enough” and some countries needed tough fiscal programmes “because they cannot afford to go on with the situation they’re in”.

“There is no fiscal austerity in Europe, but there is a need for a very reasonable fiscal path for some countries and the possibility for others to go on with withdrawal of their stimulus,” he added. — Reuters

Tension grows as G7 ministers set to meet over 'international currency war'

Bank of Japan reinstates zero interest rate, adding to fears that countries are weakening their currencies to give their economies a competitive advantage
A bank teller counts 10,000 yen. 
A bank teller counts 10,000 yen. Photograph: Yoshikazu Tsuno/AFP/Getty Images
Finance ministers from the G7 will hold an informal meeting in Washington this week to discuss growing concerns that the world is in the grip of an "international currency war" as government's manipulate their currencies to bolster exports.

The meeting on Friday, on the sidelines of the annual International Monetary Fund gathering, comes amid rising tensions between the western industrialised nations and China, whose prime minister, Wen Jiabao, is on a charm offensive in Europe this week.

In separate moves designed to weaken currencies, the Bank of Japan reinstated its zero interest rate policy and pledged to buy ¥5tn ($60bn) of assets, while Brazil doubled a tax on foreign investors buying local bonds to put a lid on a recent rally in its currency, the real. It was Brazil's finance minister, Guido Mantega, who coined the "international currency war" phrase last week, following a series of interventions by central banks in Japan, South Korea, Switzerland and Taiwan to make their currencies cheaper.

The concerns about currency manipulation have been heightened by the global recession, with many countries, including Britain, seeing a growth in exports as the means to recovery. A weaker currency means a country's exports become more competitive.

The Bank of Japan set its interest rate target to a range of zero to 0.1%, returning to zero rates for the first time in more than four years and underlining worries about the Japanese economy, which is beset by falling prices. Japanese officials intervened in the currency markets last month to weaken the yen, but the impact was only short-lived. "The pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen's appreciation," the bank said.

Before the IMF meeting, the Institute of International Finance, an industry group representing some of the world's largest banks, urged action. In a letter to the IMF, Charles Dallara, the banking lobby's managing director, called today for greater co-operation. "Urgent action is needed to arrest the disturbing trend towards unilateral moves on macroeconomic, trade and currency issues," he said.

Much of the focus remains on China, which has built its economy on exports and keeps its currency artificially low. Manufacturing figures at the end of last week told a clear story of the divergent economies in the developed world and emerging markets. Factory output in Britain, the US, Spain, Ireland and Greece all fell back sharply during September, while in China, manufacturing output rebounded more quickly than economists had been expecting.

The 16 nations in the eurozone again urged China to allow its currency to appreciate , complaining that Beijing's insistence on keeping the yuan weak was hampering global growth by creating trade deficits in the US and Europe. At a meeting in Brussels, Jean-Claude Juncker, head of the eurozone; the EU monetary affairs commissioner, Olli Rehn, and the European Central Bank president, Jean-Claude Trichet, told Wen that the yuan remained "undervalued". Juncker said: "Given China's important role, we do think that a significant and broad-based appreciation [of the yuan would] promote a more balanced growth to the benefit of both China and the global economy."

Following the Europe-Asia summit, Juncker said the discussions had been "open, frank, but nevertheless friendly" and added that both sides agreed a currency war would be "destructive". But he said the plea for movement on the yuan had been rebuffed by China, which argues that it needs rapid growth in its economy to pull hundreds of millions of people out of poverty. Wen, in return, said the rapidly growing economies of Asia should be granted more power within global institutions and that Europe should give up some of its seats at the IMF.

In Athens at the weekend, Wen attempted to smooth over relations between China and the west by offering support for the euro and suggesting that China would participate in auctions of indebted nations' government bonds, including Greece, as they seek to refinance their struggling economies.

Tensions between Beijing and Washington have been mounting on the currency issue, and Congress has approved legislation enabling the US to impose trade sanctions on China and other nations that manipulate currencies to win competitive advantage. China is also under pressure to stimulate its domestic economy in order to build a market for exports from other nations.

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