Bernanke just stepped on global policymakers' toes

It Has Begun...

By David Chance and Selcuk Gokoluk
11/4/10
BEIJING/ISTANBUL (Reuters) - Policymakers from the world's new economic powerhouses in Latin America and Asia pledged on Thursday to come up with fresh measures to curb capital inflows after the U.S. Federal Reserve said it would print billions of dollars to rescue its economy.

Emerging economies expressed displeasure at the Fed's move, making any substantive deal on global imbalances and currencies at next week's Group of 20 meeting in Seoul even less likely.

"As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," Xia Bin, an advisor to China's central bank wrote in a newspaper managed by the bank.

South Korea's Ministry of Finance and Strategy said it had sent "a message to the markets" on Thursday and would "aggressively" consider controls on capital flows, while Brazil's Foreign Trade Secretary said the Fed's move could cause "retaliatory measures."

Economy Minister Ali Babacan of Turkey, where the central bank has been buying increasing amounts of foreign exchange in an effort to curb appreciation of the lira against the dollar, said the Fed's action might backfire.

"The Fed move was a measure taken in a desperate environment. It should be considered whether pumping this much money into the market can create more damage than benefit," he said.

Thailand raised the possibility of concerted action to combat the flood of investment dollars that are expected to wash into emerging markets.

"The central bank governor has confirmed discussions with central banks of neighboring countries, which are ready to impose measures together if needed to curb possible speculative money flowing into the region," Finance Minister Korn Chatikavanij told reporters.

Zeti Akhtar Aziz, head of Malaysia's central bank, also said Asian central banks were "willing to act collectively if the need arises to ensure stability in the region.

A senior Indian finance official, who spoke on condition of anonymity, said that while the United States had a right to stimulate its own economy, others would also serve their own interests and said that any deal on currencies in Seoul had to be a "win for both the blocs."

"And that begs a political solution and that's why we are all looking to Seoul," he said.

G20 finance ministers last month thrashed out an agreement that papered over the radically different views of the two main belligerents -- the United States and China -- in a statement that called for competitive currency devaluations to be avoided and for governments to work toward a full suite of policies to reduce current account imbalances.

The earlier G20 deal fell short of a firmer statement to allow currencies - in particular the Chinese yuan - to rise, a measure that could have reassured investors that firm policy action was on the agenda, rather than just words.

China's Xia bluntly warned in the Chinese language Financial News that Beijing would pursue its own interests, saying: "We must think 'what is good for us'." Complete article