'Currency check to hit recovery'
TNN, Nov 20, 2010, 06.04am IST
NEW DELHI: The strategy of emerging economies to keep their currencies undervalued will affect global economic recovery, US Federal Reserve chief Ben Bernanke said in a speech at a European Central Bank conference in Frankfurt.
Bernanke expressed his concern over the two-speed recoveries, with developed economies like the US and other European Union countries lagging behind emerging countries like China and India. Advanced economies need accommodative policies to sustain economic growth. In the emerging market economies, by contrast, strong growth and incipient concern about inflation have led to somewhat tighter policies, Bernanke said.
Countering the criticism from a number of countries against the US decision to go in for a second round of liquidity infusion in the economy, Bernanke said, " Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole.
The strategy of liquidity infusion by US has led to increase in fund flow into developing countries in search of better returns. But this has put upward pressure on local currencies of emerging economies like China, which can affect their export competitiveness. Bernanke, however, found flaws in the strategy of emerging market economies to protect their currencies. He said, " However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using the strategy.
The US Fed chief said the current system leads to uneven burdens of adjustment among countries. The countries that allow substantial flexibility in their exchange rates bearing the greatest burden and those that resist appreciation bearing the least. India has left its currency to adjust to market forces. This has made the currency appreciate by around 8% in the last couple of months. Bernanke said because a strong expansion in the emerging market economies will ultimately depend on the recovery in the more advanced economies, this pattern of two-speed growth might well be resolved in favour of slow growth for everyone if the recovery in advanced economies falls short.
Bernanke urged the global community to devise an international monetary system that more consistently aligns the interest of individual countries with the interest of the global economy as a whole.
TNN, Nov 20, 2010, 06.04am IST
NEW DELHI: The strategy of emerging economies to keep their currencies undervalued will affect global economic recovery, US Federal Reserve chief Ben Bernanke said in a speech at a European Central Bank conference in Frankfurt.
Bernanke expressed his concern over the two-speed recoveries, with developed economies like the US and other European Union countries lagging behind emerging countries like China and India. Advanced economies need accommodative policies to sustain economic growth. In the emerging market economies, by contrast, strong growth and incipient concern about inflation have led to somewhat tighter policies, Bernanke said.
Countering the criticism from a number of countries against the US decision to go in for a second round of liquidity infusion in the economy, Bernanke said, " Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole.
The strategy of liquidity infusion by US has led to increase in fund flow into developing countries in search of better returns. But this has put upward pressure on local currencies of emerging economies like China, which can affect their export competitiveness. Bernanke, however, found flaws in the strategy of emerging market economies to protect their currencies. He said, " However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using the strategy.
The US Fed chief said the current system leads to uneven burdens of adjustment among countries. The countries that allow substantial flexibility in their exchange rates bearing the greatest burden and those that resist appreciation bearing the least. India has left its currency to adjust to market forces. This has made the currency appreciate by around 8% in the last couple of months. Bernanke said because a strong expansion in the emerging market economies will ultimately depend on the recovery in the more advanced economies, this pattern of two-speed growth might well be resolved in favour of slow growth for everyone if the recovery in advanced economies falls short.
Bernanke urged the global community to devise an international monetary system that more consistently aligns the interest of individual countries with the interest of the global economy as a whole.