The International Monetary Fund and the World Bank – meeting in Washington – are warning that the world must not slip into a currency war with countries seeking to devalue their currencies to boost exports.
They also want to restore global economic cooperation strained by an uneven recovery from the financial crisis.
The head of the World Bank, Robert Zoellick, said: “Developed countries are easing monetary policies, some developing countries are tightening (monetary policies) in response to growth, some surplus countries are intervening to lower the value of their currencies to boost exports, and all this is causing international tensions.”
Slow-growing advanced economies want to export their way to a stronger recovery helped by weaker currencies and the IMF’s Managing Director Dominique Strauss-Kahn is worried about the consequences.
He told reporters: “Many are talking about a currency war, myself I think I used this vocabulary, which may be a bit too military, but it’s true to say that many do consider their currency as a weapon and that is certainly not good for the global economy.”
Trying to protect its economy Japan intervened in foreign exchange markets for the first time in six years last month to weaken the yen – the effect did not last.
The issue of how countries influence their exchange rates remains divisive.