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October 6, 2010    

IMF fears currency war after interventions by central banks

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by Kay Murchie

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), has expressed his concern for a currency war.

According to Mr Strauss-Kahn, if Governments across the world use exchange rates as a policy weapon, there could be a serious risk to global economic recovery.

His comments come ahead of the IMF and World Bank annual meeting in Washington later this week, when G7 Finance Ministers will discuss their concerns over currencies.

Some Governments have been accused of manipulating their currencies in order to boost exports.

Yesterday, the Bank of Japan adopted an unexpected move and cut interest rates to almost zero.

This led to a fall in the value of the yen against the US dollar. Japan has been concerned that a strong yen is damaging for its economy.

A stronger yen has meant demand for exports has weakened. The Bank recently took action to weaken the currency – it was the first time in six years that such action had been taken.

Meanwhile, Brazil has threatened intervention to weaken its currency - the real, while the US continues to express dissatisfaction that China is keeping the value of its currency, the yuan, low to help its exporters at the expense of overseas competitors.

Furthermore, there have been a series of interventions by central banks in South Korea, Switzerland and Taiwan to make their currencies cheaper.

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