October 11th, 2010
06:06 AM GMT
(CNN) - The annual meeting this past weekend of the International Monetary Fund served only to sharpen, rather than resolve, growing global tensions over currency exchange rates.
The weekend moves – or lack thereof – set the scene for what may turn into a contentious meeting in November when the leaders of the Group of 20 countries meet in Seoul.
What it suggests is the cooperation seen among major economies in the wake of the financial crisis has disintegrated as nations such as Brazil, China, Japan and others intervene in their currency markets to either prop-up or deflate the value of local cash.
Dominique Strauss-Kahn, managing director of the International Monetary Fund, echoed these concerns in an interview with CNN – although he believes the meetings helped mend the unraveling thread of global cooperation.
“I was a bit worried before the meetings the momentum for cooperation could slightly vanish. The cooperation was very strong during the crisis and at the climax of the crisis) … maybe there was a feeling that the crisis is over, then everybody wants to go back to his domestic problems and forget about cooperation,” Strauss-Kahn told CNN.
“I must say during the meetings, the momentum came back,” he said. “It must be a global solution. This idea has been strengthened.”
Pressure has been building on China to let its currency appreciate against the dollar at a faster rate. But Chinese Premier Wen Jiabao has said a quick rise in currency could create domestic unrest.
“The implications down the road could be pretty dire if we don’t have some sort of mutual agreement, and sadly, I think that at this stage hoping for international cooperation on matters of this level with such far-reaching domestic implications in each country is highly unlikely,” said Kirby Daley, senior strategist of the Newedge Group. “So we could be on a collision course with some kind of major currency crisis.”
With currency certain to be a top concern as nations head to the G-20 summit next month, the question hangs: Will an agreement be reached to help calm foreign exchange markets? Or are we going headlong into a protracted currency war?
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