THE FINANCIAL WORLD seems set for a so-called ‘currency war’ after a weekend summit of the world’s leading finance ministers in Washington ended without agreement.
The International Monetary Fund conference in Washington had been called to try and agree a common plan of action for the world’s biggest economies to stabilise the world’s markets – but ended only with bitter parting shots between the US and China.
Beijing said the United States was destabilising fledgling economies by maximising the supply of dollars, while the United States responded with claims that the IMF itself should focus on exchange rates and the amount of reserves built up by China – which is itself trying to keep the yuan competitively valued in order to boost exports.
The Financial Times reports that the governor of China’s central bank told the meeting the focus on currency devaluations, which are a commonly pursued tactic at the moment as countries try to artificially lower their debts and make their exports cheaper, was “one-sided”.
“The continuation of extremely low interest rates and unconventional monetary policies by major reserve currency issuers have created stark challenges for emerging market countries in the conduct of monetary policy,” said Zhou Xiaochuan.
As the Daily Telegraph’s Ambrose Evans-Pritchard writes, many of the world’s economies – which enjoy trade surpluses with the United States (that is, they export more to the US than they import) – are actively trying to prevent the American economy from getting off the ground in order to perpetuate the demand for their own exports.
The issue will now be added to the agenda of this month’s G20 meeting in Seoul, South Korea, but the likelihood of any major nations adopting a more global perspective on the IMF’s demand for international compromise, abandoning their own native priorities, seems slim.
In the absence of any co-ordinated international efforts, countries are likely to pursue devaluation en masse – a fate that does not bode well for Ireland, which cannot devalue the euro.
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