The International Monetary Fund in its new job as currency policeman will try and forge agreements among nations and regions on how to solve global imbalances, the IMF chief said on Monday. But Rodrigo Rato, the IMF's Managing Director, cautioned against expecting rapid results.
The United States has been pressing very hard for China to revalue its currency by a significant amount, arguing that will help redress the massive US current account gap and it has sought the IMF's help in that task.
"I don't think we can put forward measures (to address global imbalances) that will create changes in a short period of time," Rato told a conference on globalisation here in Vienna.
Rather he outlined a three-step program for how the IMF will implement its new responsibilities in monitoring foreign exchange developments globally, a task it was handed at the IMF's spring meeting in April.
Firstly, the IMF will examine where there are "linkages and spillovers" from national economies or regions to other regions and identify what areas need to be addressed.
Once there is agreement on participants, the IMF staff will initiate discussions with those countries or regions to identify policies that can address systemic economic issues, he said.
"That means these discussions will be held collectively," Rato said.
Once these multilateral discussions have been held, the IMF board representing countries globally will discuss what actions are needed, he said.
The IMF long has argued that the US current account deficit, which has ballooned as a fast-growing US economy has sucked in cheap foreign goods especially from China and relied on foreign capital inflows to finance this, is unsustainable.
Financial policymakers agree the answer is for the United States to increase its savings rate, for Asian countries especially China to allow more flexibility in their currencies and for Japan and Europe to stimulate domestic demand. These moves would gradually lead to more balanced growth world-wide.
Rato said that partly reflects a realisation that global imbalances cannot continue.
IMF reform plans are due to be debated at the IMF annual meeting in September.