Currency War a Risk to Recovery, Warns IMF Chief


Inquiring minds are reading about how the head of the International Monetary Fund has waded into the growing international row over exchange rates, warning against governments using exchange rates as a weapon:

The head of the International Monetary Fund has waded into the growing international row over exchange rates, warning against governments using exchange rates as a weapon.

Dominique Strauss-Kahn said governments are risking a currency war if they use exchange rates to solve their own problems. He told the Financial Times: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon.”

He added: “Translated into action, such an idea would represent a very serious risk to the global recovery … Any such approach would have a negative and very damaging longer-run impact.”

Finance ministers from the G7 are set to discuss growing concerns over currency wars on the sidelines of the annual IMF gathering in Washington on Friday, as some governments manipulate their currencies to bolster exports.

The Bank of Japan reinstated its zero interest rate policy and pledged to buy ¥5tn (£37bn) of assets, leading to a drop in the yen. In recent weeks it also intervened in the currency markets to weaken the yen for the first time in six years, although the impact was short-lived. Brazil has threatened intervention to weaken the real, and on Monday doubled a tax on foreign investors buying local bonds to put a lid on a recent rally in its currency.

Brazil’s finance minister, Guido Mantega, coined the “international currency war” phrase last week, following a series of interventions by central banks in Japan, South Korea, Switzerland and Taiwan to make their currencies cheaper.

Aren’t you glad that the recession ended 15 months ago?

Yeah, thought so.

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