The spectre of financial war loomed ever closer on Monday after China warned the US Federal Reserve’s fresh cash injection of 600 billion dollars, or 431 billion euros, into the economy, was “hot money” that would be “a shock to global markets.”
With the global financial system at the top of this week’s G20 meeting China has joined a number of other leading economies in condemning the American policy. Last week the Germans called it “clueless”.
However President Barack Obama, speaking in India, defended the move.
“The worst thing that could happen to the world economy, not ours, not just ours but the entire world’s economy, is if we end up being stuck with no growth or very limited growth and I think that’s the Fed’s concern and that’s my concern as well,” he said.
China’s language has been very tough. Often under fire from America for not letting its currency rise, the Chinese vice finance minister said printing dollars was an “indirect manipulation of exchange rates”, and that as a global reserve currency the US had to “face its responsibilities” and “think about the impact of excessive liquidity.”
Curiously this weekend the World Bank boss Robert Zoellick floated something no other expert is suggesting as a solution; returning to the gold standard, or something like it, to restore financial stability.