RPT-PREVIEW-Currency tensions rising ahead of IMF meeting
Fri Oct 1, 2010 8:00am EDT
(Repeats story filed on Thursday. No changes to text)
* Currencies major issue at IMF Oct. 8-10 annual meeting
* Officials admit FX a concern, donwplay idea of war
* Emerging economies reject US calls for pressure on yuan
* Complaints about weaker dollar growing
By Walter Brandimarte
NEW YORK, Oct 1 (Reuters) - Fears some countries may resort to currency depreciation to boost exports will be one of the hottest issues at the International Monetary Fund's annual meeting next week.
Currencies will be a delicate topic at the Oct. 8-10 gathering in Washington as they can be used as a powerful tool to help rebalance the global economy, or as a means to seek a competitive trade edge.
With the dollar weakening on expectations of further easing in U.S. monetary policy, worries about competitive devaluations are on the rise as investors flock to higher-yielding currencies. Many such currencies are in developing countries.
Developed countries could use weaker currencies to support exports and bolster their economies. But emerging markets do not want to pay for a crisis that started in the developed world by seeing their currencies surge in value and their trade competitiveness erode.
"We cannot simply allow our economies to be imbalanced while allowing other economies to be balanced," Brazil's central bank president Henrique Meirelles told Reuters on Thursday. Some countries "are trying to protect themselves by weakening their currencies."
Earlier this week, Brazilian Finance Minister Guido Mantega said the world was in an "international currency war" as governments try to manipulate foreign exchange rates to boost exports.
Financial authorities around the globe, including IMF chief Dominique Strauss-Kahn, have rejected this notion. But most admit the idea that competitive devaluations is a concern.
Canadian Finance Minister Jim Flaherty suggested on Wednesday the issue would be on the table when the Group of Seven developed nations holds an informal meeting on the sidelines of the IMF meeting next week.
"Currency issues are major issues in the world. They distort trading relationships," Flaherty said. "We believe that currencies, including the Chinese currency, need to be more flexible so that our trading relationships are more rational."
BLAME IT ON CHINA
Two weeks ago, U.S. Treasury Secretary Timothy Geithner said he would rally other Group of 20 powers to push China for currency reforms at a November leaders' summit in South Korea.
Canada has been one of the few countries publicly backing U.S. efforts to convince China to let its yuan currency CNY=CFXS rise in value -- in a strategy to stem a flood of imported Chinese goods.
Beijing's currency policy has been a hot topic in Washington, where many lawmakers claim that an undervalued yuan has given China an unfair trade advantage and cost American jobs. The U.S. House of Representatives on Wednesday passed a bill to penalize China for not letting the yuan rise faster.
Increased tensions on the currency front have raised questions on whether the world needs another Plaza Accord -- the 1985 agreement signed by five powerful capitalist countries in a New York hotel that allowed the U.S. dollar to depreciate against other major currencies.
It seems obvious, however, that this time around most world leaders will give the United States the cold shoulder. Countries such as Brazil, South Korea and India have made it clear they don't want to anger China, a major trading partner.
"We have a good relationship with China. We won't take up that issue. Let other big countries take it up," an emerging market central banker who declined to be named told Reuters.
Brazilian Foreign Minister Celso Amorim, who called China Brazil's "main customer," said last week that putting pressure on the Chinese "isn't the right way for finding solutions."
Korean Finance Minister Yoon Jeung-hyun said discussions of the yuan's level were "not appropriate" for the G20 summit.
IT'S THE DOLLAR, NOT THE YUAN
Instead, many G20 leaders seem more inclined to discuss the recent weakening of the dollar, which has lost more than 5 percent this month against a basket of major currencies .DXY on expectations that the U.S. Federal Reserve will further loosen its monetary policy.
Investors have rushed into the currencies of emerging markets looking for a better return.
"We want to avoid a bubble situation. We don't want our rupiah overvalued," Indonesian Finance Minister Agus Martowardojo said when asked whether he was worried about hot money inflows.
Strategies to stem the rise in emerging market currencies, such as regular dollar purchases by central banks and taxes on capital inflows, may come into more frequent use. Analysts, however, warn such moves will hardly tame the wall of money chasing higher yields outside the United States.
"Policy response by developed countries will create more inflows into emerging markets," Joyce Chang, global head of emerging markets research at JPMorgan, told a conference this week, anticipating more appreciation pressures for emerging market currencies.
"It's not only an emerging markets story, it's even in the G3 with Japan," she said, referring to Japan's recent actions in foreign exchange markets to curb the strength of the yen. (Additional reporting by Louise Egan in Ottawa, Sebastian Tong in London, Suvashree Dey Choudhury in Mumbai, Neil Chatterjee in Jakarta; Editing by Leslie Adler and Andrew Hay)
Fri Oct 1, 2010 8:00am EDT
(Repeats story filed on Thursday. No changes to text)
* Currencies major issue at IMF Oct. 8-10 annual meeting
* Officials admit FX a concern, donwplay idea of war
* Emerging economies reject US calls for pressure on yuan
* Complaints about weaker dollar growing
By Walter Brandimarte
NEW YORK, Oct 1 (Reuters) - Fears some countries may resort to currency depreciation to boost exports will be one of the hottest issues at the International Monetary Fund's annual meeting next week.
Currencies will be a delicate topic at the Oct. 8-10 gathering in Washington as they can be used as a powerful tool to help rebalance the global economy, or as a means to seek a competitive trade edge.
With the dollar weakening on expectations of further easing in U.S. monetary policy, worries about competitive devaluations are on the rise as investors flock to higher-yielding currencies. Many such currencies are in developing countries.
Developed countries could use weaker currencies to support exports and bolster their economies. But emerging markets do not want to pay for a crisis that started in the developed world by seeing their currencies surge in value and their trade competitiveness erode.
"We cannot simply allow our economies to be imbalanced while allowing other economies to be balanced," Brazil's central bank president Henrique Meirelles told Reuters on Thursday. Some countries "are trying to protect themselves by weakening their currencies."
Earlier this week, Brazilian Finance Minister Guido Mantega said the world was in an "international currency war" as governments try to manipulate foreign exchange rates to boost exports.
Financial authorities around the globe, including IMF chief Dominique Strauss-Kahn, have rejected this notion. But most admit the idea that competitive devaluations is a concern.
Canadian Finance Minister Jim Flaherty suggested on Wednesday the issue would be on the table when the Group of Seven developed nations holds an informal meeting on the sidelines of the IMF meeting next week.
"Currency issues are major issues in the world. They distort trading relationships," Flaherty said. "We believe that currencies, including the Chinese currency, need to be more flexible so that our trading relationships are more rational."
BLAME IT ON CHINA
Two weeks ago, U.S. Treasury Secretary Timothy Geithner said he would rally other Group of 20 powers to push China for currency reforms at a November leaders' summit in South Korea.
Canada has been one of the few countries publicly backing U.S. efforts to convince China to let its yuan currency CNY=CFXS rise in value -- in a strategy to stem a flood of imported Chinese goods.
Beijing's currency policy has been a hot topic in Washington, where many lawmakers claim that an undervalued yuan has given China an unfair trade advantage and cost American jobs. The U.S. House of Representatives on Wednesday passed a bill to penalize China for not letting the yuan rise faster.
Increased tensions on the currency front have raised questions on whether the world needs another Plaza Accord -- the 1985 agreement signed by five powerful capitalist countries in a New York hotel that allowed the U.S. dollar to depreciate against other major currencies.
It seems obvious, however, that this time around most world leaders will give the United States the cold shoulder. Countries such as Brazil, South Korea and India have made it clear they don't want to anger China, a major trading partner.
"We have a good relationship with China. We won't take up that issue. Let other big countries take it up," an emerging market central banker who declined to be named told Reuters.
Brazilian Foreign Minister Celso Amorim, who called China Brazil's "main customer," said last week that putting pressure on the Chinese "isn't the right way for finding solutions."
Korean Finance Minister Yoon Jeung-hyun said discussions of the yuan's level were "not appropriate" for the G20 summit.
IT'S THE DOLLAR, NOT THE YUAN
Instead, many G20 leaders seem more inclined to discuss the recent weakening of the dollar, which has lost more than 5 percent this month against a basket of major currencies .DXY on expectations that the U.S. Federal Reserve will further loosen its monetary policy.
Investors have rushed into the currencies of emerging markets looking for a better return.
"We want to avoid a bubble situation. We don't want our rupiah overvalued," Indonesian Finance Minister Agus Martowardojo said when asked whether he was worried about hot money inflows.
Strategies to stem the rise in emerging market currencies, such as regular dollar purchases by central banks and taxes on capital inflows, may come into more frequent use. Analysts, however, warn such moves will hardly tame the wall of money chasing higher yields outside the United States.
"Policy response by developed countries will create more inflows into emerging markets," Joyce Chang, global head of emerging markets research at JPMorgan, told a conference this week, anticipating more appreciation pressures for emerging market currencies.
"It's not only an emerging markets story, it's even in the G3 with Japan," she said, referring to Japan's recent actions in foreign exchange markets to curb the strength of the yen. (Additional reporting by Louise Egan in Ottawa, Sebastian Tong in London, Suvashree Dey Choudhury in Mumbai, Neil Chatterjee in Jakarta; Editing by Leslie Adler and Andrew Hay)