Perilous Times, Globalisation and the New
World Order
World Bank calls for global co-operation to halt full-scale currency war
• Dollar sinks on fears of escalating US-China dispute
• World Bank's Robert Zoellick warns of protectionism risk
• IMF head Dominique Strauss-Kahn: 'no domestic solution to global
crisis'
* Larry Elliott Economics editor
*
guardian.co.uk, Thursday 7 October 2010 20.21 BST
IMF's Strauss-Kahn and World Bank's Zoellick World Bank president
Robert Zoellick, left, and IMF managing director Dominique Strauss-Kahn
at the annual IMF-World Bank meeting in Washington on Thursday.
The World Bank warned today that a full-scale currency war risked a
return to the protectionism of the 1930s amid fears that growing
tension between Washington and Beijing will hinder the global economy's
recovery from its deepest post-war slump.
Concerns that this weekend's annual meetings of the Bank and the
International Monetary Fund will see an escalation of the war of words
between the US and China over the level of the yuan sent the dollar to
an eight-month low against the euro today.
In Washington, the heads of both the Bank and the IMF used press
conferences to call for international co-operation to resolve the row.
"If one lets this slide into conflict or forms of protectionism, we run
the risk of repeating mistakes of the 1930s," said Robert Zoellick, the
Bank's president.
Zoellick added that the recovery was proving too weak to reduce
joblessness: "Whenever you have high unemployment, you have risks of
other tensions. We see this now in debates on currencies."
The US says China has been deliberately intervening to keep its
currency low, thereby boosting its exports. Tim Geithner, the US
treasury secretary, said this week that China's actions set off "a
dangerous dynamic" and urged the international community to put
pressure on Beijing to allow the yuan to appreciate.
China's premier, Wen Jiabao, said margins on Chinese exports were thin
and that forcing the yuan higher would lead to social unrest.
Zoellick said: "History shows there is no future in 'beggar thy
neighbour' policies, and in an increasingly inter-connected world, we
need not just to be conscious of the negative effects policies can have
on others, but we need to act accordingly."
He added: "Tensions can lead to trouble if not properly managed. The
recent crisis is still affecting jobs and livelihoods across the world.
If ever there were a time that we should not turn our backs on
international co-operation, it is now."
Dominique Strauss-Kahn, the managing director of the IMF, said the
international co-operation seen during the worst of the financial and
economic turbulence was not vanishing, but was decreasing. "That is a
real threat, because everybody has to keep in mind this mantra that
there is no domestic solution to a global crisis.
"Many are talking about currency war," he added. "It is true to say
that many do consider their currency as a weapon, and that is certainly
not for the good of the global economy, of course."
Responding to Geithner's demand that the IMF take a tougher line with
Beijing, Strauss-Kahn said the IMF had been the only institution to
call repeatedly for a revaluation of the Chinese yuan.
Strauss-Kahn expressed sympathy with Geithner's call for reform of the
IMF's governance to be linked to action on currencies. China and other
emerging countries want their increasing importance in the global
economy to be reflected at the IMF and reforms are currently being
discussed.
He said that if the bigger developing nations wanted to be at the
centre of the IMF "it goes with having more responsibility for what you
do and the consequences of what you do for the global economy".