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U.S. Treasury Secretary Timothy Geithner said the United States would not devalue the dollar (Reuters) for export advantage. The dollar has experienced a protracted decline, and tensions have been rising over Chinese and U.S. currency valuations ahead of this weekend's G20 finance meeting. Many emerging-market countries feel that Federal Reserve policies are weakening the dollar and causing more money to flow into their economies, which increases their currency values. Talk of a brewing "currency war" has ensued, as countries' central banks step in to prevent economies from losing export competitiveness. At the Commonwealth Club of California, Geithner said, "No country around the world can devalue its way to prosperity, to [be] competitive. It is not a viable, feasible strategy and we will not engage in it." U.S. officials have blamed China's yuan policy for distortive capital flows. Japan's finance minister declared the government's readiness to intervene in the currency market (WSJ) and urged coordination on currency policies at the G20 meeting in Gyeongju, South Korea. At a meeting of central bankers in Shanghai, IMF Managing Director Dominique Strauss-Kahn touted capital controls as a means to prevent another financial crisis (WSJ) in Asia, a policy the IMF has resisted until recently.
Analysis:
In the Financial Times, Felipe Larrain says the U.S. dollar needs to depreciate against emerging-market currencies, as the gap between economic growth and interest rates in the United States and emerging markets grows.
On the WeeklyStandard.com, Irwin Stelzer says the "prospects for coordinated international action are dim" at the G20 meeting.
On RGEMonitor, Nouriel Roubini says real depreciation of currencies in deficit countries may occur via deflation rather than nominal depreciation, if surplus countries successfully resist appreciating their currencies.
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