October 11th, 2010
06:06 AM GMT
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(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?

soundoff (20 Responses)
  1. Pat

    This guy would probably have made a better president of France than Sarkozy.

    October 11, 2010 at 7:18 am |
  2. Craig MacKay

    I've got an idea...one world currency.
    Then we all know what we're paying and who is profiting.
    But I guess that won't work for the market speculators.

    October 11, 2010 at 10:24 am |
  3. Campi G L

    The worst has yet to come...

    October 11, 2010 at 12:18 pm |
  4. Rob

    He's looking good for 2012 ;)

    October 11, 2010 at 12:50 pm |
  5. Mikehattan

    But what happens when the Chinese realize that the dollar is virtually worthless now. In addition we owe China billions!

    October 11, 2010 at 4:11 pm |
  6. h191

    currency war for sure. There is zero possibility the yuan would appreciate by 40 percent get real. Every country is looking out for their own interest not just china.

    October 11, 2010 at 4:44 pm |
  7. hanoi22

    In her eyes the Chinese government isn't taking responsibility, but their main responsibility is to the Chinese people.

    China cannot suddenly switch from being export driven to more domestically driven economy. This will be gradual, which is why the appreciation of the Yuan also needs to be gradual. A sudden appreciation will mean millions of manufacturing jobs lost and these people on the poverty line.

    People complain about the lack of human rights in China, however it is clear that the same people actually don't care about the Chinese people. If people really really cared about the Chinese people, they would not complain about China "stealing" jobs. These jobs may mean the difference between a Chinese factory worker being able to send money home to support their parents, and having to stay at home working on the farm.

    October 11, 2010 at 5:46 pm |
  8. desert voice

    Can anyone explain to me what is wrong with having a mandatory single currency in the world for those nations which want to trade together? The remaining nations can form their own trading block! I am a Catholic theologian and I just don't see the problem with a single currency. I deal in concepts, languages, and spiritual things, that is true. But this doesn't mean that we theologians lack common sense! The common sense tells me that, in the name of fairness, trade would be much more secure if we knew at all times the value in a single currency for the products we sell, and the merchandise we purchase! As it is now, only China is working, and the rest of the world spends its last savings to enrich China! I just read, in the Polish media, that China has signed a contract with Poland to send tens of thousands if not hundreds of Chinese students to Polish universities this year. The Poles signed the contract without hesitation. Why? Because the Chinese paid 12 times the tuition a Polish student pays! Imagine, each "princely" Chinese pays twelve times more than a Pole does! It was too good an offer to pass by. Now, where the Chinese get these tons of money? The Politburo swears that "the Chinese companies' profits are veritably minimal." So where in the world these endless trillions come from? There must be something obscenely wrong with this one-sided globalism!

    October 11, 2010 at 6:50 pm |
  9. Oladipo Akinyemi Omole

    Maggie darling,
    things have certainly fallen apart in developing economies of Africa whose currencies are still not standard. Although some efforts at a common West African currency have been attempted in the past, it still hasn't addressed the predicaments of foreign investors.The CFA is not standard. In their attempts to attract foreign investments, the common strategy has been to devalue their currencies hoping to make it cheaper for foreign investors to establish plants in their domains.While this strategy has been successful in advanced economies as Pauline Chou has noted in one of her reports , it has been limited by tremendous obstacles in African economies.
    Since the currencies of these economies are not standard, it has become quite difficult and defeatist for foreign investors who ultimately would need to repatriate their profits from operations in such economies and losing money in the process, because of a strong Dollar,Sterling and Euro.
    Also, it hasn't been easy for these investors to operate profitably and successfully,because of poor infrastructure and chiefly poor power generation and distribution mechanism, poor road network which has made it quite difficult if not impossible to gain access to the hinterland.In Nigeria for instance these problems appear to be insurmountable.They are exacerbated , by a comatose rail transportation system which has largely been deliberately or inadvertently neglected by the federal government who may have been convinced to do so by transporters from the South East who feel threatened by the prospect of a fast and efficient rail transportation system that could provide another alternative to road transportation which has become practically impossible as the roads through-out the country are in bad shape.Successive administrations after the military regimes that built these road networks have neglected them and starved them of needed funds.The Obasanjo administration attempted to repair the roads,but corruption stifled his best efforts at doing so.
    A number of reputable multinational firms are poised to address these problems but they've been limited chiefly by the aforementioned factors the most serious of which is the challenges of remitting their profits back to their headquarters.
    Of course you know the EU, United Kingdom , United States and Japan don't encounter these problems among themselves, because their currencies are standard.In the European Union, integration has eliminated the problem of exchange rates and trading is easier among the nation-states of Europe.
    Mr Strauss-Khan and his team at the IMF would have recorded another masterful feat like the establishment of IMF itself, if they can resolve these issues at the G-20 Summit next month...

    P.S I say with a lot of emphasis that it's quite great discussing these issues with you darling and I'm also glad to tell you I've been making some good friends in the United States of recent and I'm thrilled about it.I love you...always.
    Oladipo Akinyemi Omole

    October 11, 2010 at 6:57 pm |
  10. yankieEuro

    Whats the fuss about currency anyway. Western countries are not that friendly, they have their dark side too, the Chinese didn't steal their jobs, the yanks, along with the Europeans want to cut cost. If China appreciates the Yuan, will the U.S, and their western partners get those manufacturing jobs back, probably not. So, the west are running out of ideas of satisfying their citizens, after the subprime mess they created. Instead of focusing on the problem, they jab China, to create a circus out of it, to take people's attention out of their domestic issue. Lets assume China appreciates the Yuan, everything went belly up inside, the Americans will receive their goods at their higher markup, so will the Europeans, and I wonder what economic benefits, the consuming world will get.

    October 13, 2010 at 1:56 am |
  11. BSTeh, Kuala Lumpur, Malaysia

    What is the primary objective of the leader of every nation? Get re-elected by taking care of their economies i.e. increase GDP, create employment and wealth, control inflation, stabilise the investment climate etc etc.

    How do they do that? Everything necessary in the book and out but the bottom line is to take care of one's own and help others whenever possible. It is foolish to beggar thy neighbour for the world is so interlinked and interdependent that no good comes from schadenfreude.

    However, the Germans have a point when demanding that tough changes and hard measures must go in hand with collective assistance. Cohesiveness and unity cannot come at the convenience of the beneficiary and to the detriment of the benefactor.

    With the re-emergence of nationalism sweeping across Europe at the expense of idealism, it would be interesting to witness how the mechanics of pragmatism gives the call for altruism a thorough examination and vigorous workout.

    Consider a liberal European power deporting helpless European itinerants. Consider the rise of the right all across Europe.

    We are witnessing the world on the cusp of a new world order where the values of freedom and equality are applied on a nationalistic level while individualistic liberty and rights are subsumed for the greater good.

    One example is the collective resistance of South America to the colonialistic overture of Britain on the Falklands is an indicator that should not be lost to the US which could only feebly propose to mediate on behalf of its strongest supporter.

    Another illustration is the spirited Brazilian and Turkish show of solidarity with a much maligned West Asian oil producing country.

    A now classic case is the cavalier attitude of a superpower's increasingly uncontrollable ward which not only proceeded to break international laws twice but actually embarrassed its Vice Presidency and caused its State department to publicly recant its earlier admonishments.

    Methinks this year's Noble Peace Prize Committee is out of sync with current sentiments and events and is in clear and present danger of losing its relevance irretrievably. Perhaps the situation can be neatly summed up by a Gandhian observation. When asked what he thought of Western civilisation, Gandhi replied 'I think it would be a good idea'.

    As for the IMF and the Seoul meeting, the signs are ominous even as the official statements betray its growing despair for the 'slightly vanishing' momentum of cooperation among nations.

    Ok. Now open your mouth and say aarrgh.

    October 14, 2010 at 5:21 am |
  12. Lim

    Could the US be miscalculating?

    US businesses overseas will end up reporting more profits from overseas businesses as foreign currency appreciates. That reduces any incentive to shift already offshore businesses back to US.

    On the other hand, the only way a weaker US currency can affect imports is assuming imports are price-elastic. If it is price-inelastic ie necessities, then it ends up exaggerating the trade balance rather than solving it.

    Would anyone outside the US want to invest in the US when its only a losing proposition due to a declining currency?

    Would anyone in the US want to invest in the US when they're going to get more by investing offshore due to an appreciating offshore currency?

    October 15, 2010 at 3:46 am |
  13. nhtse

    US wants to swing its magic wand to create money, however, the wealth in the world is fairly constant: the created wealth come from those who hold US dollars, debt bond, etc. Such kind of behavior looks like robbery.

    October 15, 2010 at 4:22 am |
  14. Michael

    Business with Chinese is a one way street. They don't care about anything but money. I live in Beijing and although it is disappointing to see a warm country change to greed over just 14 years since I've been here. The resentment that the poor and middle class feel towards the explosion of wealthy Chinese, has created a "get it anyway you can" feeling with complete disregard to anyone else. The entire country has such a high level of corruption it is not the place that I chose to call home years ago. They simply don't care about anyone but themselves anymore. Sad.

    October 17, 2010 at 2:36 am |
  15. vkmo

    Price of gold hit $1380 per ounce today, in year 2000 it was below $300 per ounce. Thanks to the gold mines in Tibet which China annexed, it is the largest producer of gold in the world today, see http://in.answers.yahoo.com/question/index?qid=20080628014853AAnDDwK . China doesn't need the added benefit of a fixed fraudulent currency rate to boost its economy. The current regime illegally occupied Tibet for its minerals, fixed this unfair currency rate to gain in trade and in addition practices copyright, patent and other trade violations for economic gain. Other nations should stand up to China.

    October 17, 2010 at 6:09 pm |
  16. desert voice

    Can someone tell me if the United States has the option to imitate China, and do exactly what they do as far as currency is concerned? If it is enormously successful in China, why can't we replicate it? Can't we for instance create two types of dollar: a strong one for maintaining the status of Social Security recipients, and a weaker one for raising new industries and paying salaries? If we can revive the national economy producing on the cheap, as do Chinese, we will also be able to flood the world markets with our products, as they do! I welcome expert opinions.

    October 17, 2010 at 7:00 pm |
  17. desert voice

    Do not the Chinese operate with a dual currency: the local renminbi for paying salaries and building up ifrastructure and industries, and and the international yuan, for trade? If this works stupendously for them, let's replicate them on that!

    October 17, 2010 at 7:03 pm |
  18. Sam

    The problem with America's economy is the rise in productivity can't catch up with the rise in production cost and not because of currency. American had invented and manufactured most of the household name products in the world. That was the great generation of American. But the present generation just want higher salaries and blame others for their failure.

    October 18, 2010 at 10:55 pm |
  19. luan

    the price of money is complex, in our history show that it. Now the world is conflict about the strong or weak of local money, so i think it will the long matter. The end i think the usa always is a clever nation and taking the initiative in all matter cause the us dollar is the world money.

    November 17, 2010 at 3:07 am |
  20. icons design

    Curiously, but it is not clear

    October 5, 2012 at 6:15 am |

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