The recently concluded annual IMF-World Bank meetings of finance ministers and central bankers did not yield a breakthrough in ending or even moderating the intensity of the ongoing currency battles among countries. The result was not unexpected, given the stridently opposite views held by the two main protagonists, the United States and China. China has accused the U.S. of destabilising the emerging economies by flooding their financial markets, including those of Brazil and India, in order to prop up its own domestic demand. The U.S., on the other hand, wanted greater surveillance by the IMF of China's exchange rates and its accumulation of reserves. So far, China has resisted revaluing the Yuan except gradually. Other countries have been forced to actively manage their exchange rate policies to safeguard their interests. Brazil has doubled its tax on certain types of foreign currency inflows. In India, the flood of portfolio money is posing major challenges for the exchange rate policy and macroeconomic management. With countries such as Indonesia and Taiwan taking steps to hold down the value of their currencies, the exchange rate crisis may soon assume critical proportions. Although it might confer short-term advantages, competitive currency depreciation is injurious over the medium term and at the present juncture might choke the nascent global recovery.

The communiqué at the end of the main IMF meeting hinted at greater cooperation in tackling the pressing economic problems of the day. However, there is very little evidence that the world's biggest countries would find common ground to tackle any of the issues that divide them. The mutually injurious currency wars will not end unless a solution is found to the issue of correcting global imbalances in an orderly manner. The severity of the problem notwithstanding, the world's biggest debtor and creditor countries have not been able to make any progress even towards identifying its true dimensions. Cooperation might be lacking also because problems such as those relating to rebalancing of the global economy require a new, special mechanism in the IMF or in the G20. With the economic crisis abating, individual countries probably do not feel the urgency to act. The lack of cooperation is also symptomatic of a major shift in economic power away from the rich countries towards the emerging Asian and Latin American countries. Previous G20 meetings have clearly demonstrated the ascendance of the emerging economies, and the forthcoming meeting at Seoul will see a further consolidation of their position.

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