World Economy

IMF Says Still Premature to Worry About Currency War

Gerry RiceGerry Rice

Worry about a potential currency war in the wake of President Donald Trump’s inauguration is “premature,” a spokesman for the International Monetary Fund said Thursday.

 “I don’t see evidence of firm policy decisions made that would lead us to suggest that we’re heading for currency wars, so I think that would be premature,” IMF spokesman Gerry Rice said, MarketWatch reported.

Experts have expressed concern that some comments from the White House could lead to a currency war, especially if the Trump White House follows up tough talk with action to weaken the dollar. This year, the Wall Street Journal dollar index has lost 2.6%.

Stephen Roach, a senior fellow at Yale University’s Jackson Institute of Global Affairs, and former chairman of Morgan Stanley Asia, told MarketWatch there was a lot of concern in markets about a currency war, in light of “rather hostile comments” from the White House with respect to trade practices in Mexico, Japan and Germany.

For instance, late last month, Trump’s top trade adviser Peter Navarro accused Germany of currency exploitation. He said, Germany is using a “grossly undervalued” euro to “exploit” the US and its EU partners. The euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main trading partners. 

German Chancellor Angela Merkel, whether she was being disingenuous or genuinely clueless, responded quickly to deny the charge with her misleading assertion that Berlin has no control over the value of the euro because it believes in the independence of the European Central Bank in conducting monetary policy.

For that matter, as Bloomberg helpfully noted, the euro actually is undervalued across the board, as much as 25% against the dollar against its Group of 10 peers, according to measures of purchasing power parity used by the OECD.

Germany reported on Thursday its global trade surplus in 2016 hit $270 billion, the highest surplus since World War Two.

Experts said Republican push for a big tax cut and infrastructure spending when the economy is close to full employment will push the dollar higher. Imposing tariffs on imports and a border-adjustment tax could also strengthen the dollar, said Desmond Lachman, a resident fellow at the American Enterprise Institute.

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