IMF Also Warns On Currency War
The director of the International Monetary Fund is the last official that warns of the outbreak of the “currency war”, meaning a race of the governments in the world to depreciate their national currencies in order to give anemic a growth boost.
“The idea started to circulate according to which currencies can be used as weapons in economic policy. Translated into action, such an idea would be a very serious risk to the global economic recovery. Such an approach can be very damaging and can have a lasting impact” Dominique Strauss-Kahn warned.
This issue, addressed in numerous pages of the business newspapers Financial Times and The Wall Street Journal gave in the last two weeks, came after the Brazilian Finance Minister Guido Mantega, has criticized the United States, Japan and other rich countries which he said allow local currencies to depreciate so that to boost the economic growth at the expense of other exporters such as Brazil. The real, Brazil’s currency, has appreciated 30% against the dollar last year.
“We are in the midst of a currency war,” said Mantega at that time. “This is a threat to us because it affects our competitiveness.”
Robert Zoellick, President of the World Bank considers itself a war that although the probability is small money, “clearly there will be tensions” in the markets.
Recently, Japan was one of the most active countries in terms of financial market interventions. To stop the yen appreciation after an increase of 14% from May against the dollar in the first days of October, the central bank sold local currency worth 20 billion dollars. Other countries that have intervened to pull down the course of their national currencies were Switzerland, South Korea and Brazil.
Another problem is the situation of the Yuan, which also creates tension, whose value is artificially held down by the government in Beijing to help exporters whose products become more competitive when sold in the West. Until now, Chinese leaders have ignored calls and threats of trade sanctions made by the Americans and Europeans, who insists that the Yuan be allowed to appreciate.
Some analysts believe the Yuan should be assessed at a rate of 40% over the current one. China has fixed its currency quotation from 6.8 units per dollar in the past two years, but announced in June that will allow the Yuan’s easy to appreciate. Since then, the Chinese currency has appreciated by only 2% against the U.S. dollar.
One explanation for the imbalances and pressures facing the money markets is reflected in the opposition of anemic growth and rapid expansion of the economies of emerging markets, said World Bank president. “Money is moving in search of high returns and these returns cannot be found in developed economies. This not only triggers an appreciation of the currencies of emerging and developing, but push up the price of certain assets, emphasizing risks artificial increases in prices of real estate and other goods, “Zoellick believes.
Net private capital flows to emerging economies will rise to 825 billion dollars in 2010, up from 581 billion dollars in 2009, according to the Institute of International Finance in Washington.
IMF, which will be held at the end of this week, one of two of its biannual meetings, is expected to bring up events in the currency markets, as part of its mission to help countries to work towards a balanced global growth.
Strategies have highlighted the problem of global imbalances still made money a few years ago, showing that the main issues to be addressed urgently is the dominance of the U.S. dollar on currency markets, Yuan’s overrated, but low domestic consumption in Germany.11