Friday, October 8, 2010

World Bank Warns Of Global Currency Tensions

President of the World Bank Robert Zoellick has warned that gobal currency tensions need to be resolved. With IMF and World Bank meetings due this weekend, China in particular is under pressure to let its currency rise.

World Bank President Robert Zoellick said on Thursday currency tensions could lead to trouble if not properly managed.

[Robert Zoellick, World Bank President]:
"History shows there is no future in beggar-thy-neighbor policies and in an increasingly connected world we need not just to be conscious of the negative effects that policies can have on others, but we need to act accordingly. Today we face currency tensions. Tensions can lead to trouble if not properly managed."

IMF and World Bank meetings this weekend are expected to involve intense discussions about efforts to persuade China to let its currency rise.

China held the yuan stable during the financial crisis but in June promised to let it respond more freely to market forces -- yet since then it has risen only about 2 percent against the U.S. dollar.

Zoellick says China's currency should appreciate, but that is not a "silver bullet" in solving global imbalances.

He says the U.S bears responsibility as well.

[Robert Zoellick, World Bank President]:
"The U.S. has the reverse situation. It has relatively lower savings and higher consumption, so these will be issues the U.S will need to deal with in terms of spending and budget issues."

The IMF warned that the task of reducing heavy government debt burdens, while essential, would put a significant drag on those economies.

Slow growth at home leaves countries unusually reliant on exports, and this has heightened concerns they will intentionally weaken their currencies to boost trade.