Strauss-Kahn: Global Currency War Possible, but Not Likely

The threat of a global currency war is small, but cannot be completely ruled out, said the director of the International Monetary Fund (IMF) Dominique Strauss-Kahn after a series of interventions in the currency markets.

In the context of a wave of dissatisfaction caused by global economic powers injecting money into currency markets to make their exports cheaper than the competition, Strauss-Kahn stated that the possible consequences of a currency war should prompt countries to consider a pause."At the moment, it seems to me that there is no great danger of a currency war. However, it is certainly one of the possibilities", said Strauss-Kahn."I think the probability of such a war is relatively low, as everyone realizes that excessive conflicts would have negative consequences. Nevertheless, the possibility exists", he added. At the beginning of the week, Brazilian Finance Minister Guido Mantega expressed dissatisfaction with the impact of the strengthening Brazilian real on the key export sector of the country. "A currency war is raging on the international scene", said Mantega, signaling a possible imminent intervention. "This poses a threat to us as it undermines our competitiveness". In recent weeks, numerous governments, from Colombia to Singapore, have acknowledged that they have attempted to lower the value of their currencies through interventions to make their exports cheaper.

The latest dispute related to countries’ efforts to be more competitive after the recession has erupted in the US-China relationship. The US has complained for years that China artificially maintains a low value of the yuan, preventing its rise to fully realize the large profits of Chinese exporters, expressed in foreign currencies. American lawmakers will vote during the day on introducing sanctions against China if its government does not allow the undervalued yuan to rise against the dollar. The currency issue will also be among the main agenda items for finance ministers and central bank governors at the annual IMF meeting in Washington next week, as well as at the upcoming G20 summit in South Korea. A former IMF official warns that the fund itself bears some responsibility for the current escalation of tensions."The IMF has abdicated its responsibility for oversight, and now everyone can do what they want", said the former IMF official and member of the Peterson Institute for International Economics Morris Goldstein."If China can intervene and manipulate the exchange rate of its currency for seven to eight years in a row and the IMF does not react at all, what prevents others from doing the same?", he added. (H)