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.
World Bank President Robert Zoellick said the rising economic tensions reflected a weak global recovery.
“A lack of growth accompanied by high unemployment is having consequences,” Zoellick told reporters at a news conference concluding the IMF-World Bank meetings. “There is a danger that countries will turn inward and, as a result, international cooperation falters. This could be dangerous.”
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.