Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises protectionist barriers to imported goods.
The International Monetary Fund wrapped up two days of talks in Washington yesterday with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.
The communique essentially papered-over sharp differences on currency policies between China and the United States.
The Obama administration, facing November elections where high US unemployment will be a top issue, has been ratcheting up pressure on China to move more quickly to allow its currency to rise in value against the dollar.
American manufacturers contend the Chinese yuan is undervalued by as much as 40 per cent and that this has cost millions of US manufacturing jobs by making Chinese goods cheaper in the United States and US products more expensive in China.
China has allowed the yuan to rise in value by about 2.3 per cent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the US House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies.
Egyptian Finance Minister Youssef Boutros-Ghali told reporters yesterday at a concluding news conference that there were "a number of points of friction'' at the meetings. But he said it was a significant achievement that all countries recognised the central role the IMF should play in trying to resolve currency conflicts.
IMF Managing Director Dominique Strauss-Kahn said he did not view the outcome of the discussions as a failure. He said they set the stage for further progress at the upcoming summit of leaders of the Group of 20 nations in November in Seoul and at future IMF meetings.
