IMF, EU warn of currency war

International Monetary Fund (IMF) chief Dominique Strauss-Kahn has told the French press that he is seriously concerned over the danger of a currency war between influential countries. And the European Union on Thursday warned that the euro’s strength could sabotage economic recovery.

Reuters

As the euro jumped close to 1.40 dollars and the dollar plumbed 15-year lows, Strauss-Kahn told Le Monde newspaper he will do all he can to prevent currency conflict.

But, he warned, that countries might be tempted to opt for national, rather than international, solutions to their economic problems, especially by devaluing in order to give their exports a boost.

 
Japan's authorities have intervened to hold down the yen and Brazil has been moving in the same direction with its currency, the real.

The dollar is falling because of continuing fears that the economic recovery after last year's crisis may be stumbling.

In its latest economic outlook, the IMF says growth is likely to slow more than predicted in 2011, as the US, Europe and Japan continue to struggle and China remains dependent on exports.

The IMF has lowered its world growth forecasts to 4.2 per cent from the 4.8 per cent predicted earlier, while lowering its US growth forecast by 0.6 points to 2.3 per cent.

Emerging markets are expected to expand at a rate of 7.1 per cent this year and 6.4 per cent in 2011, with rich countries growing at only at 2.7 per cent in 2010 and 2.2 per cent next year.

As expected, the European Central Bank and the Bank of England have decided to keep record low interest rates unchanged.