World Bank President Robert Zoellick yesterday called for policy actions to quell growing tensions over currencies and to shore up confidence in the sputtering global economic recovery.
Zoellick said slow growth in advanced economies and the threat of asset bubbles in booming emerging market countries present growing risks that global finance officials, who gather in Washington later this week, need to tackle.
The uneven pattern of world growth has raised concerns about tit-for-tat policy responses as nations seek to protect their trade competitiveness.
Japan intervened in foreign exchange markets for the first time in six years on 15 September to drive down the yen, as several emerging markets have done with their currencies, prompting Brazil last week to warn of a “currency war.”
“Money is chasing yield. It can’t find those yields in developed economies and this is not only pushing up currency values in developing countries... [but] also pushing up prices in assets with the risk of bubbles in property and some commodities,” said Zoellick ahead of meetings this week of the World Bank and International Monetary Fund.
The Institute of International Finance (IIF), which represents over 420 member banks in more than 70 countries, said emerging market nations were concerned their currencies could become “unduly strong” given the low interest rate environment was expected to continue in developed economies for longer than initially thought. “The near-term danger, however, is that this upward pressure escalates and market adjustment becomes disorderly, causing renewed strains in global financial markets and, possibly, igniting policy tensions and, possibly, protectionist measures between key economies, most obviously, the US and China,” the IIF added.
City A.M. Reporter