I.M.F. Chief Tries to Calm Tension Over Currency

[Dinars R us]

I.M.F. Chief Tries to Calm Tension Over Currency

By REUTERS

Published: October 7, 2010

WASHINGTON — The International Monetary Fund on Thursday sought to head off a battle over currency values and restore global economic cooperation strained by an uneven recovery from thefinancial crisis.

The I.M.F. Managing Director Dominique Strauss-Kahn said at a news conference that a weakening in the spirit of cooperation that grew out of the crisis was regrettable, and said an adjustment in currency values must be part of economic rebalancing.

“I think it’s fair to say that momentum is not vanishing but decreasing and that’s a real threat,” he warned. “Everybody has to keep in mind this mantra that there is no domestic solution to a global crisis.”

Mr. Strauss-Kahn said he disliked the notion that a currency war was brewing because the term was “too military,” but conceded “it’s fair to say that many do consider their currency as a weapon and that’s certainly not for the good of the global economy.”

This weekend’s semi-annual meetings of the IMF and World Bank, along with a Friday night session of Group of Seven finance chiefs, are expected to provide a forum for intense discussions about efforts to persuade China to let its currency rise and tamp down pressures for other emerging countries to control capital flows.

Mr. Strauss-Kahn said having a bigger say at the I.M.F., as requested by big emerging economies like China, comes with greater responsibility in the global economy.

“If you want to be at the center of the system,” he said, “it goes with having more responsibility in the system.”

In an interview published by Le Monde earlier on Thursday, Mr. Strauss-Kahn pointed at China’s currency policy as a primary sticking point in efforts to rebalance the global economy.

“The undervaluation of the yuan is the source of tensions in the world economy which are in the process of becoming a threat,” he told the newspaper. “If we want to avoid creating the conditions for a new crisis, China will need to accelerate the appreciation process.”

Slow-growing advanced economies want to export their way to a stronger recovery, and a weaker currency would help. The United States has repeatedly expressed frustration with the slow pace at which the yuan is rising.

China held the yuan stable during the financial crisis but in June promised to let it respond more freely to market forces, but since then it has risen only about 2 percent against the dollar.

A desire to protect its economy led Japan to intervene in foreign exchange markets for the first time in six years last month to weaken the yen.

Many emerging markets have initiated measures to control capital flows in a bid to keep their currencies from appreciating too rapidly.

The U.S. Federal Reserve is considering printing more money to buy assets in the hope of speeding up the pace of U.S. growth to bring down high unemployment. The side effect is a weaker dollar that is fueling global tensions.

Since mid-June, the U.S. dollar has fallen nearly 13 percent against major currencies a basket of currencies, erasing most of the gains it racked up earlier in the year when European sovereign debt worries sent investors scrambling for safety.

Emerging markets are caught in the crossfire. Investors turned off by low returns in the United States and elsewhere are pouring money into fast-growing economies such as Brazil, driving up asset prices and inflation.

http://www.nytimes.com/2010/10/08/business/global/08imf.html?_r=3&ref=global-home

[lechesuerte]

Interesting article. The currency issue will not go away soon. Hopefully our currency issue will!!! GO RV in 2010!!!

[radar47]

Great article. Hopefully, we will have an RV soon.

[ajob]

Thanks for the article,

It makes me wonder how much Iraq is causing some of this unrest by not RVing their currency. It seemed in the past that their RV was going to be the trigger to the rest RVing. If that is the case they must have great pressure on them to get it done.