Finance Minister Pravin Gordhan said on Thursday the world was heading towards a “currency war” unless developed nations gave ground in negotiations at the Group of 20 (G20).
“Unless the G20 takes on the responsibility of getting major players to sit around the table to find a spirit of cooperation and generosity and give-and-take … we are heading for what Mr Mantega, the finance minister of Brazil, correctly called a currency war,” Gordhan told a Parliament finance committee.
Last month, Brazilian Finance Minister Guido Mantega said the world was in an “international currency war” as governments manipulate their currencies to improve their export competitiveness.
G20 finance ministers meet in Seoul next week ahead of a summit on November 11 and 12 to try to reconcile differences over deep imbalances in the global economy and reduce the risk of such a currency conflict.
“There are a set of global structural problems, if you like, that we are walking into that we will have give serious attention to in the next few weeks,” Gordhan said. “A few weeks later the G20 leaders meet in Seoul and by that time we’ve got to find answers to that question.”
Global currency strains are festering as financial markets factor in the prospect of the US Federal Reserve printing more money to support a faltering domestic recovery.
Capital has flowed to emerging markets in search of higher yields, leading to a strengthening of their currencies that is threatening their economic growth.
“Exchange-rate appreciation as capital flows from low-growth developed countries to emerging markets with higher returns reduces competitiveness and poses a risk to balanced growth,” Gordhan said.
Tax
Some emerging markets such as Thailand and Brazil have introduced a tax on capital flows to stem the flood of foreign money.
In South Africa, that idea did not get support at a major policy meeting of the ruling African National Congress in September.
South African Reserve Bank Governor Gill Marcus said late on Wednesday the flood of money could be a long-term phenomenon.
The rand, the currency of Africa’s biggest economy, has gained 29% against the dollar since the beginning of last year, weighing on exports and wider economic growth.
It hit a new 33-month high of 6,7620 against the dollar on Thursday. — Reuters