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Last Updated: Wednesday, 24 September, 2003, 15:42 GMT 16:42 UK
IMF attacks G7 over exchange rates

By Andrew Walker
BBC economics correspondent in Dubai

IMF managing director Horst Koehler
Koehler: exchange rates should not be subject of "organised pressure"
The head of the International Monetary Fund (IMF) has issued an implicit but pretty clear rebuke to the G7 and US Treasury Secretary John Snow.

Horst Koehler blames the world's biggest economies for exerting unwarranted pressure on the currency markets, notably against Asian currencies.

Exchange rates should not be the subject of "public trumpeting and organised pressure", Mr Koehler told delegates at the G7 conference in Dubai.

His words followed renewed falls in the US dollar, prompted by a single phrase in a statement issued on Saturday by G7 finance ministers.

The ministers said: "more flexibility in exchange rates is desirable".

It was cryptic, but currency markets traders knew exactly what the G7, or more precisely, Mr Snow, was driving at.

Saving jobs

For a year or so, the US dollar has been weak. It has drifted down markedly against the euro.

But many Asian countries have intervened in the markets - by buying dollars - to ensure the US currency did not decline against their own.

Their motive was a falling dollar, which would have left them less competitive.

And that is the very reason why US officials do not like what the Asian countries have been doing.

Chicago currency futures trader
Traders had no difficulty decoding the G7 message
The US has a very large deficit in its trade with the rest of the world.

In Congress, the deficit is seen by many as a case of exporting American jobs - so they would like a weaker dollar.

That would leave US companies more competitive against countries where bilateral trade is in deficit.

There is a deficit with much of Asia, so the currency market intervention has not gone down well in Washington.

Mr Snow has not been explicit in naming and shaming the suspected offenders - if currency market intervention can be described as a source of shame.

But China is certainly one target, and Japan probably another, along with some of the smaller eastern economies.

Currency traders had no difficulty decoding the G7 message - though it seems a rather lopsided one in terms of who in the G7 really means it.

Euro gains

Clearly Mr Snow does, but Japan does not and there is little apparent enthusiasm from the British.

The three G7 members that use the euro - Germany, France and Italy - do have something to gain from rising Asian currencies.

The euro has taken the strain of the falling dollar.

European business has been made less competitive at a time when those three economies are performing weakly and could do with being helped rather than undermined by developments in the currency markets.

The IMF's Mr Koehler believes currency movements have a role to play in putting right "imbalances" in the world economy.

The US trade deficit is probably the imbalance that makes him most uneasy.

But his message seems to be that shouting from the rooftops in Dubai or anywhere else about currency markets isn't the most constructive way to go about it.

IMF head cautiously optimistic
11 Mar 03  |  Business
IMF head sees turnaround
20 Sep 03  |  Business

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