The managing director of the International Monetary Fund (IMF), Horst Koehler, on Tuesday backed the call by the Group of Seven (G7) of leading industrialised economies for more flexibility in exchange rates.
”Allowing greater exchange-rate flexibility would be helpful both domestically and globally,” he said in his opening speech to the IMF/World Bank annual meetings in the Gulf emirate of Dubai.
He said one of the key steps needed to deal with risks from current account imbalances and high public debt involves ”allowing more flexible exchange rates where appropriate”.
The finance ministers and central bank chiefs of the G7 — Britain, Canada, France, Germany, Italy, Japan and the United States — called in Dubai on Saturday for ”more flexibility in exchange rates” and urged the IMF to exercise ”effective and persuasive surveillance” of the currency situation.
Although their statement stopped short of mentioning any state in particular, the diplomatic wording was widely seen as a message to Asian countries, especially China, to allow their currencies to rise.
IMF chief economist Kenneth Rogoff said last week a failure to allow the Asian currencies to rise could have a potentially devastating effect on Europe if the colossal US current account deficit eventually causes a plunge in the dollar.
The dollar plunged to a 33-month low against the yen on Monday, following the G7 statement. But its fall against the yen slowed in Singapore trading on Tuesday, with the Japanese market closed for a public holiday.
China’s central bank deputy governor Li Ruogu said on Sunday that Beijing’s fixed exchange rate policy was beneficial both for his own country and the world economy. — Sapa-AFP