Finance Leaders Call for IMF Role in Averting Protectionist `Currency War'

http://www.bloomberg.com/news/2010-10-09/finance-leaders-call-for-i...


Finance Leaders Call for IMF Role in Averting Protectionist `Currency War'
By Sandrine Rastello and Iuri Dantas - Oct 9, 2010 10:00 PM GMT-0600

*
* Tweet (66)
* LinkedIn
* Share
o Business Exchange
o Buzz up!
o Digg
* Print
* Email

Guido Mantega and Christine Lagarde

Guido Mantega, finance minister of Brazil, talks to Christine Lagarde, finance minister of France, at the International Monetary Fund governors group photo during the IMF- World Bank Group annual meetings. Photographer: Andrew Harrer/Bloomberg

Global governments tasked the International Monetary Fund with calming the recent outbreak of tensions over currencies amid signs they are already triggering a protectionist backlash.

Officials including U.S. Treasury Secretary Timothy F. Geithner and Egyptian Finance Minister Youssef Boutros-Ghali said the lender should outline how countries can expand their economies without damaging those of other nations. China is accused of keeping the yuan undervalued to boost exports, while low interest rates in the U.S. and other industrial nations are blamed for propelling capital flows into emerging markets.

“The IMF has an important role to play to help ensure that progress toward rebalancing strengthens,” Geithner said in a speech at the IMF’s annual meeting yesterday in Washington. “It is ultimately the responsibility of countries to act, but the IMF must speak out effectively about challenges and marshal support for action.”

Currency intervention has returned to the fore as countries from China to Brazil and Japan try to restrain their exchange rates to secure a trading edge. That has roiled currency markets as has the prospect of easier monetary policy from the Federal Reserve. The dollar fell last week to its lowest in 15 years against the yen.

The ‘Right Place’

IMF Managing Director Dominique Strauss-Kahn accepted the role of currency cop and said the fund would publish reports highlighting linkages between economies as part of a “systemic stability initiative.” The IMF’s steering committee also said it should “deepen its work” on capital flows, exchange rate movements and the accumulation of reserves.

“The need to have this kind of spillover report has been discussed for months and now it’s part of our toolbox,” Strauss-Kahn said.

It may already be too late to stop a shift toward protectionism. Ukraine’s Deputy Premier Serhiy Tigipko said in a Washington interview that his country may become the latest emerging market to consider capital controls to prevent short- term investments from fueling volatility in its currency, the hryvnia. India may also intervene “to prevent volatility and prevent the disruption of the macroeconomic situation,” Reserve Bank of India Governor Duvvuri Subbarao told reporters in Washington.

The IMF studies will focus on the U.S., China, the U.K., Japan and the euro area. They will show, for instance, how U.S. monetary policy affects capital flows to other countries.

Canadian Finance Minister Jim Flaherty said there is broad support for Strauss-Kahn’s enhanced role and warned the restraining of some currencies risks fanning protectionism. China, the world’s fastest growing major economy, has limited gains in the yuan to about 2 percent against the dollar since June.

‘Role to Play’

“There’s general agreement that the IMF has an important role to play,” Flaherty told reporters. “There have been discussions here with respect to developing rules of the road or guidelines with respect to how countries deal with their currencies.”

The IMF nevertheless has a weak record in recent years on pushing governments to change their policies toward trade and exchange rates. A 2006 effort to oversee the rebalancing of the world economy petered out and China has repeatedly rejected the fund’s analysis.

“For lack of a better alternative, the IMF has to play an active role in trying to mitigate currency competition,” said Eswar Prasad, a senior fellow at the Brookings Institution and a former IMF official. “But the IMF power is really limited to persuasion because it has few good instruments to promote cooperation among member countries who are unwilling to modify their policies.”

Currencies Vulnerable

A U.K. official questioned the new approach, telling reporters it sounded like the IMF would now just carry out its regular reviews of economies at the same time. By contrast, Boutros-Ghali said “the IMF is the place to deal with these issues.”

Developing economies that compose the Group of 24 this week said low interest rates in the advanced world have left them vulnerable to exchange rate appreciation and overheating. Brazil has already stepped up intervention in the currency market in a bid to prevent its currency, the real, from rallying. Polish central bank governor Marek Belka said capital inflows have the potential to “derail monetary policy.”

Chinese officials said they will stick to a gradual rise in the yuan’s value to avoid social turmoil.

“We are committed to a more flexible exchange regime,” People’s Bank of China Deputy Governor Yi Gang told reporters in Washington yesterday. “A more flexible, market-based, managed floating regime is better for China and is better for the rest of the world. But the approach is probably a gradual one.”

“It’s very unlikely that China will come on board because they already feel they’re unfairly singled out,” said Prasad, who used to head of the China division at the IMF.

The currency spat came as talks aimed at increasing the power of emerging markets within the IMF stalled. The U.S. rejected a proposal by European governments to reduce the number of seats they hold on the 24-strong board as insufficient, according to two European officials, who spoke on condition of anonymity.

China would become the IMF’s third-largest member after a planned increase in voting rights. Strauss-Kahn said with greater influence comes more responsibility.

“You cannot be in the center and be a free rider,” he said. “The more you are at the center, the more you need to take your part in stabilizing the whole system.”

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
.

Views: 55

Comment

You need to be a member of 12160 Social Network to add comments!

Join 12160 Social Network

"Destroying the New World Order"

TOP CONTENT THIS WEEK

THANK YOU FOR SUPPORTING THE SITE!

mobile page

12160.info/m

12160 Administrators

 

Latest Activity

Doc Vega posted a blog post

What Has Tulsi Gabbard Been Up to? Oh, Just catching Obama's ass ordering Intelligence Agencies to Commit Treason!

As we can always expect, the mainstream media will do anything they can to undermine the Trump…See More
33 minutes ago
Burbia commented on tjdavis's blog post The Jewish Couple That Taught Bob Dylan Hebrew and Introduced Him to Zionism
"Haaretz put this story behind a pay wall. Sali Ariel and Terry Noble were the names of the couple…"
3 hours ago
William Heckman is now a member of 12160 Social Network
5 hours ago
cheeki kea commented on tjdavis's photo
8 hours ago
cheeki kea commented on cheeki kea's video
Thumbnail

This Woman DESTROYED Harley-Davidson's Future Forever

"It's a sad day on the highway. But I guess the show must go on. Watch out for the ruination of…"
9 hours ago
cheeki kea posted a video

This Woman DESTROYED Harley-Davidson's Future Forever

This Woman DESTROYED Harley-Davidson's Future ForeverWelcome to Ride Radar – Your Frontline Source for Motorcycle Deals, Trends & Market Mayhem.Looking for t...
10 hours ago
tjdavis posted a photo
15 hours ago
Burbia posted a status
"Who knew releasing the MLK files and literally deflecting, it ends up implicating himself with the Epstein Files."
yesterday
Burbia posted a video

Dan Bilzerian DEMOLISHES MAGA Nutjob Patrick Bet-David on His Own Show

Watch as two powerhouse personalities collide in this no-holds-barred debate on one of the world’s most contentious issues. Patrick Bet-David, known for his ...
Monday
Doc Vega's 7 blog posts were featured
Sunday
tjdavis's 2 blog posts were featured
Sunday
Less Prone favorited tjdavis's blog post Track AIPAC
Sunday
FREEDOMROX's blog post was featured

MRNA VACCINES: Question

Hello my fellow sojourners,I know it has been five years since the Plandemic, but one question has…See More
Sunday
Less Prone favorited FREEDOMROX's blog post MRNA VACCINES: Question
Sunday
cheeki kea commented on cheeki kea's photo
Saturday
cheeki kea posted a photo
Saturday
Doc Vega posted blog posts
Friday
Doc Vega commented on Doc Vega's blog post Marjory Taylor Green Proposes Bill Abolishing Geoengineering or Weather Modification
"cheeki kea Marjory is in a daily battle with Democrats on the hill constantly coming up with more…"
Friday
Doc Vega posted blog posts
Jul 16
Mr. Sizzle favorited Less Prone's video
Jul 15

© 2025   Created by truth.   Powered by

Badges  |  Report an Issue  |  Terms of Service

content and site copyright 12160.info 2007-2019 - all rights reserved. unless otherwise noted