Currency war threats global economy

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Currency war threats global economy
The Indian Finance Minister, Pranab Mukherjee, addressing at the BRICs conference at the IMF head quarters warned that if the economic crisis deepens then international community may find itself on the brink of a currency war.

He further added this currency war should be avoided, and it should resolved through dialogue. A competitive dialogue will only aggravate the situation.

BRICS is the acronym given to the economic block consisting the nations of Brazil, Russia, India, China and South Africa. This statement was made at the headquarters of the International Monetary Fund often stated as IMF.

In response to a question, Mukherjee reiterated, "Yes, if the crisis deepens further and there is greater volatility in financial flows, there is an increased risk of this (currency war) happening."

He further added "But our view is that if such tensions arise, it should be eased through the dialogue and not through competitive devaluations."

Mukherjee also opined that the currencies of BRICS countries should appreciate. The same, BRICS currencies, should be taken into account for determining the special drawing rights (SDR) that is maintained by the IMF.

He point was that since these nations' are contributing more towards the global output and their economy is also substantial.

"But we are not suggesting right now, because there are many other factors which ought to be taken into account, including free convertibility and other things which are not uniform, but the importance of these currencies has increased," Mukherjee said in response to a question.

VIEW: Although the Finance Minister was right, especially seen in the context of the actions taken by the Switzerland Central bank. At the press conference there was no suggestion of possible concrete steps.

It was a bold move by Mukherjee to state that all the five members of the BRICS countries should appreciate their currency, since China is resisting this idea most, as any such move will negatively affect the export segment of China.

A currency appreciation will hit India's IT services but it will help the government reduce the government deficit that the government incurs on crude and other imports.

GoodReturns.in
(With Input from PTI)

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