IMF warns against currency war
The head of the IMF warned that a growing drive by nations to cap the strength of their currencies risked derailing economic recovery while the dollar dropped further on Wednesday.
Concerns that the Federal Reserve is about to embark on another round of policy easing that could weaken the dollar, tallied with China’s polite refusal to let its yuan rise fast, has pushed currencies to the top of the agenda at Friday’s meeting of finance chiefs from the Group of Seven nations.
Few hold out much hope of any meaningful agreement at the G7 or the International Monetary Fund meeting that follows.
The dollar extended its losses on Wednesday, falling to an 8-1/2 month low against a basket of currencies and edging toward a 15-year trough versus the yen. That trend prompted Japan to intervene to weaken the yen last month and some emerging economies have followed suit or are threatening to. “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon,” IMF MKDDominique Strauss-Kahn was quoted as saying in the Financial Times. The IMF, which holds its twice-yearly meeting in Washington this weekend, is also expected to discuss foreign exchange moves as part of its mission to get countries working for balanced global growth.
London-based Mitsubishi UFJ Securities International economist Brendan Brown said the Fund, which has the United States as its biggest stakeholder, would not try to prevent further US monetary easing or a resulting slide of the dollar.
Euro zone policymakers urged Chinese premier Wen Jiabao on Tuesday to allow the yuan to rise more rapidly, but he politely rebuffed them, repeating Beijing’s standard line on seeking currency stability. Policymakers have highlighted the issue of global imbalances for years, with fundamental problems seen as the dollar’s global dominance, China’s overvalued yuan and Germany’s lack of domestic consumption.
