By Alister Bull
WASHINGTON Jan 23 The International Monetary
Fund's chief economist played down concerns on Wednesday that
easy monetary policies in advanced economies risk sparking a
"currency war", saying there had not been a major surge of
capital into emerging nations.
"I think this increasing talk of currency wars is very much
overblown," Olivier Blanchard said at a news conference.
"Countries have to take the right measures to get their own
economies back to health ... (and) to the extent we think the
policies are appropriate, then the implications in terms of
exchange rates are also appropriate."
Top central bankers have spoken out over the risk of
competitive devaluations as policymakers in advanced countries,
particularly Japan and the United States, pursue aggressive
action to reflate their economies, which can have the effect of
weakening their currencies on foreign exchange markets.
The issue is likely to be a topic of hot discussion at the
G20 group of major economies, which meets in Moscow Feb. 15-16.
Concerns spiked on Tuesday after the Bank of Japan, bowing
to domestic political pressure to act on growth, doubled its
inflation target to 2 percent and backing this commitment with
open-ended asset purchases to pump money into the economy.
"I like neither the term nor concept of currency wars. It is
my deep conviction that international cooperation is the better
way. For years, the Group of Seven has been the appropriate
forum in questions of the major currencies," ECB board member
Joerg Asmussen told Reuters in an interview later that day.
European exporters worry that the Japanese are deliberately
pursuing policies to undermine the value of the yen against the
euro, thereby making European goods more expensive in Japan,
while Japanese goods become cheaper in Europe.
Brazil has also been a vocal critic of expansionary monetary
policies and has taken aim at the Federal Reserve's massive
quantitative easing designed to support a gradual U.S. recovery,
while holding interest rates almost at zero since late 2008.
Brasilia says this has provoked a flood of capital into the
Brazilian economy as investors search for higher yields,
threatening to overheat its economy and inflate asset bubbles. A
similar argument has been made by other emerging economies with
freely floating exchange rates, including Chile.
But the IMF's Blanchard disputed that there had been a
"sea-change" in emerging market capital flows.
"There is this notion that capital flows to a number of
emerging market countries have been gigantic in the recent past.
That is not true. They have basically continued to be volatile
but there is no sea-change in the recent past," he said.