Could The International Monetary Fund Halt The Currency Wars?

Tuesday October 19, 2010

Currency wars – it sounds very dramatic and overwhelming doesn’t it? And yet this is the phase that is being bandied about at the moment in many circles.

The IMF – International Monetary Fund – has met in China in recent days to discuss the worries that are circulating about these wars. The worries stem from the situation we find ourselves in after the recession. There has been some progress in improving the state of the world’s finances. But there is concern that if the biggest nations in the world do not continue to come together to work in unison, the so called ‘currency wars’ could bring down the recovery.

It was certainly promising that the IMF meeting still took place in Shanghai, China on Monday 18th October. But whether anything meaningful will have taken place as a result remains to be seen.

Apparently there are several indicators that could be seen as potentially damaging to the global economic recovery. Wars between various currencies are one of the primary concerns in play, and this is why the IMF is eager to play its part in playing down the potential damage that could be caused.

The general message is one of optimism – if all countries are prepared to continue working together in positive ways, much can be achieved. Hopefully the aftermath of the recession will clear much more quickly as well as a result.

The pound sterling dropped in value significantly in 2008 and this has been pointed at by many as being the catalyst that started the currency wars. But it is probably the case that until this week very few people were even aware that there was such a thing. It has only been since mention was made of the currency wars around the time of the IMF meeting that such an idea has taken on a mainstream interest.

It will be interesting to see whether news of the alleged currency wars dies down once the meeting has paled into the background. There is plenty more going on to catch people’s attention, and the deputy managing director of the IMF – John Lipsky – has stated “there is no currency war”. So perhaps it is all just a storm in a teacup anyway?

Of course some will say the role of the deputy managing director would be to manage the reaction to a potential currency war in that very way. But are they correct?