International Monetary Fund Managing Director Dominique Strauss-Kahn dismissed chances of a return to the currency accords of the 1980s and said the fund can help member countries define policies that are coherent with a balanced recovery.
“I’m not sure the mood is to have a new Plaza or Louvre accord,” Strauss-Kahn told reporters in Washington today at the start of the IMF’s annual meetings. The IMF has a role to play “to have a better understanding of what should be done by each party” and help foster “a consistent policy by the big shareholders at the fund.”
Exchange rate intervention reached its heyday in September 1985 when the world’s five major economies signed the Plaza Accord to weaken the dollar. The Louvre Accord was introduced two years later to buoy the U.S. currency. The Group of Seven hasn’t intervened in a coordinated way since September 2000 when it rescued the euro.
Japan last month sold the yen for the first time in six years to spur exports and economic growth, joining countries across Asia and Latin America that have tempered gains in their currencies against the dollar. Brazil’s Finance Minister Guido Mantega warned Sept. 27 of a “currency war” and said that his government will buy all “excess dollars” in the market to curb the real’s appreciation.
Strauss-Kahn said the term “currency war” is “maybe too military,” though “it’s true to say that many do consider their currency as a weapon and that’s certainly not for the good of the global economy.”
China is accused of artificially undervaluing the yuan, having limited its gains against the dollar to about 2 percent since a June pledge to make it more flexible. The country held the yuan at about 6.83 per dollar two years prior to that to shield its exporters from the global crisis.
Treasury Secretary Timothy F. Geithner yesterday said a “damaging dynamic” of large economies keeping their currencies undervalued can cause quicker inflation and asset bubbles, and restrict growth.
Chinese Premier Wen Jiabao yesterday reiterated his view that a rapid increase of the yuan would hobble China’s economy, dealing a fresh rebuke to U.S. and European calls for a higher exchange rate.
As IMF members negotiate to give emerging economies more clout at the institution, Strauss-Kahn said gained influence will imply increased responsibility.
“If you want to be at the center of the system, which I understand is a request by many big emerging countries that want to have more say at the IMF, which is absolutely legitimate, it goes also with having more responsibility on what you do, and the consequences of what you do in the global economy,” he said.
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