French Finance Minister Christine Lagarde said today she was not “in the mind or the mood for war”, describing it as “totally inadequate, inappropriate and unnecessary.” Phew.Global finance chiefs met over breakfast in Washington, just as the September employment report showed the U.S. economy was still shedding jobs and sent the dollar tumbling to a 15-year low against the yen. How about that to focus the mind.
The question is whether they can come up with some form of words at the IMF meetings over the weekend to calm the markets, to show that they are determined to address the imbalances that underlie the tensions over currencies.
Foreign exchange intervention by the Chinese to keep the yuan low is, after all, only part of the story. The bigger problems are the uneven pace of global economic growth, the weakness of the U.S. economy that is fuelling the dollar’s decline, and the export-oriented policies of many other countries.
Everyone knows that countries running huge trade surpluses, like China, need to spend more at home. And everyone is beginning to realize that they can’t afford not to help the United States, that a weak U.S. economy and weak dollar is a problem for everyone.
But a stronger yuan? That might be a problem, after China’s Wen Jiabao made the extraordinary assertion this week that a rapid rise would lead to “social and economic turbulence. In China’s one-party state, where the fear of social unrest is deeply rooted, that is not a line authorities will want to cross.