Saturday, October 9, 2010
Global finance leaders fail to resolve deep differences that threaten full-blown currency war
WASHINGTON (AP) -- Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.
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 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 U.S. 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 percent and this has cost millions of U.S. manufacturing jobs by making Chinese goods cheaper in the United States and U.S. products more expensive in China.
China has allowed its currency, the yuan, to rise in value by about 2.3 percent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the U.S. House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies.
Egyptian Finance Minister Youssef Boutros-Ghali told reporters Saturday 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 recognized 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.
Strauss-Kahn said the G-20 countries remained committed to the goals they established a year ago of achieving more balanced global growth and that this will require changes in currency policies.
The G-20 includes traditional economic powers such as the United States and Europe along with fast-growing economies such as China, Brazil and India.
"I am not disappointed," Strauss-Kahn told reporters about the outcome of the two days of talks. "We can talk and talk and talk. What we need is real action. I don't believe this action can be done except in a cooperative way."
Strauss-Kahn acknowledged that significant differences also remained on the question of reforming the IMF by giving China and other fast-growing economic powers greater voting rights and representation on the IMF board. The G-20 leaders are supposed to endorse a deal on IMF reform at their Nov. 11-12 summit.
Treasury Secretary Timothy Geithner on Wednesday raised the possibility that awarding greater power to China in the IMF should be linked to a greater willingness of that country to reform its currency system.
Strauss-Kahn said this comment was not a form of blackmail but rather acknowledgment that as countries grow more important economically, they mush bear greater responsibility for the proper functioning of the global economy.