LONDON (Reuters) - The United States is pursuing a policy of weakening its currency, driving up exchange rates in the rest of the world, former Federal Reserve Chairman Alan Greenspan warned on Wednesday.
In a guest column for the Financial Times, Greenspan also said that as China holds down the renminbi, the upward pressure on other currencies risks a return to widespread protectionism.
“America is also pursuing a policy of currency weakening. The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world,” Greenspan wrote ahead of the Group of 20 summit in Seoul on Thursday. “Something has to give in this arena of zero-consolidated current account balances.”
The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent “currency wars” and a rush to protectionism that could imperil global recovery.
Greenspan said while the global trading system can tolerate a modest amount of protection, “the flaws in the global trading system are large and worrisome.”
“If the G20 is serious in pledging to sustain open multilateral trade and the international financial system that fosters it, it should be willing to forgo an element of sovereignty to achieve net gains for all,” Greenspan wrote.
Reporting by Karolina Tagaris; Editing by Andrew Hay