Finance leaders fail to resolve currency dispute
Saturday, October 09, 2021 6:03 PM

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(Source: Associated Press/AP Online)By MARTIN CRUTSINGER and HARRY DUNPHY

WASHINGTON - Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.

Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises projectionist barriers to imported goods.

The International Monetary Fund wrapped up two days of talks with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.

The communique essentially papered-over sharp differences on currency policies between China and the United States.

The Obama administration, facing November elections where high U.S. unemployment will be a top issue, has been ratcheting up pressure on China to move more quickly to allow its currency to rise in value against the dollar.

American manufacturers contend the Chinese yuan is undervalued by as much as 40 percent and this has cost millions of U.S. manufacturing jobs by making Chinese goods cheaper in the United States and U.S. products more expensive in China.

China has allowed its currency, the yuan, to rise in value by about 2.3 percent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the Obama administration began taking a more hardline approach and the U.S. House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies.

Chinese officials continued to insist that their gradual approach to revaluing their currency was best, and that faster movements risked destabilizing the Chinese economy.

Various other nations, including Japan, Brazil and South Korea, also have taken steps to keep their currencies weaker in an effort to increase their exports. And in the United States, expectations of further monetary easing by the Federal Reserve have driven the dollar down significantly against the euro and other major currencies.

Egyptian Finance Minister Youssef Boutros-Ghali told reporters Saturday at a concluding news conference that there were "a number of points of friction" at the meetings. But he said it was a significant achievement that all countries recognized the central role the IMF should play in trying to resolve currency conflicts.

IMF Managing Director Dominique Strauss-Kahn said he did not view the outcome of the discussions as a failure. He said they set the stage for further progress at the upcoming summit of leaders of the Group of 20 nations in November in Seoul and at future IMF meetings.

Strauss-Kahn said the G-20 countries remained committed to the goals they established a year ago of achieving more balanced global growth and that this will require changes in currency policies.

The G-20 includes traditional economic powers such as the United States and Europe along with fast-growing economies such as China, Brazil and India.

"I am not disappointed," Strauss-Kahn told reporters about the outcome of the two days of talks.

Strauss-Kahn acknowledged that significant differences also remained on the question of reforming the IMF by giving China and other fast-growing economic powers greater voting rights and representation on the IMF board. The G-20 leaders are supposed to endorse a deal on IMF reform at their November summit.

Treasury Secretary Timothy Geithner on Wednesday raised the possibility that awarding greater power to China in the IMF should be linked to an increased willingness of that country to reform its currency system.

Strauss-Kahn told reporters Saturday that this comment was not a form of blackmail but rather acknowledgment that as countries grow more important economically, they must bear greater responsibility for the proper functioning of the global economy.

But Oxfam, an international aid group, criticized Geithner's comments.

"The currency war cannot be used to hold IMF reform hostage," said Oxfam spokesperson Pamela Gomez. "The IMF can't do its job unless emerging economies are at the table."

In his comments to the IMF's policy-setting panel on Saturday, Geithner said that the IMF must begin to speak more forcefully about how countries manage their currencies.

The IMF's concluding statement did pledge to work for "stronger and evenhanded surveillance to uncover vulnerabilities in large advanced economies." Strauss-Kahn said he would personally participate in the annual economic reviews of the world's five or six largest economies, a group that would include the United States and China.

But private economists were not impressed with the IMF's new commitments on surveillance.

"The IMF ratcheted up the focus on exchange rate surveillance a few years ago and then eased off under pressure from China," said Eswar Prasad, a trade professor at Cornell University. "Now it is back to reasserting what should have been a core part of its surveillance mandate all along."

While the United States has been leading the charge against China, some other countries voiced their support during the IMF-World Bank meetings.

Olli Rehn, the economic commissioner for the 27-nation European Union, told the IMF committee that it was important that China start "to implement soon a more flexible exchange rate regime."

Canadian Finance Minister James Flaherty told reporters that the global economy would be the loser if nations followed "beggar-thy-neighbor" currency policies that invited retaliation by other nations.

But French Finance Minister Christine Lagarde said Saturday that a successful resolution of the currency dispute with China would require a cooling of over-heated rhetoric about currency wars.

"In a war, there is always a loser and in this situation there must not be a loser," she said.

She said that France, which will serve as leader for the G-20 in 2011, plans a major focus on developing reforms to the international currency system.

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