CRUNCH talks between leaders of the International Monetary Fund (IMF) member countries yesterday failed to allay fears of an all-out currency war.
Finance chiefs had hoped to thrash out concrete plans for dealing with uneven global growth, which is behind increasingly choleric currency tensions.
Rhetoric between China and the US has been stepped up in recent weeks over China’s refusal to allow the yuan to appreciate against the dollar.
Leaders agreed the IMF should have more powers to scrutinise the macroeconomic policies of individual nations, but fell short of guaranteeing it will have the political clout to influence policy decisions.
Former IMF chief economist Kenneth Rogoff warned it is vital the organisation is granted the additional powers.
He said: “Given the financial crisis that just happened, and the difficulties the IMF has had in getting any traction in the global exchange rate system, it simply has to find a way to gain more leverage over the advanced economies if it is to accomplish its mission of helping maintain global economic and financial stability.”
Dominique Strauss-Kahn, the IMF’s managing director, has proposed drawing up “spillover reports” on how the economic policies of the world’s five largest economies – the US, China, the euro zone, Japan and the UK – affect each other.
The reports would build on existing IMF powers allowing it to examine the economic policies of all its 187 member countries and make recommendations.
The talks will be resumed at the meeting of the G20 nations in Seoul next month, where the currency debate now threatens to overshadow the proceedings. The hosts had hoped world leaders would address longer-term issues such as the creation of a global financial safety net.