IMF policymakers failed to reach a consensus Saturday on measures to head off what some see as a looming currency war but pledged to continue working toward a solution to growing global imbalances. The International Monetary Fund steering committee, which has been struggling with ways to address the friction among key economies including China and the United States, said the organisation should continue its study.
"While the international monetary system has proved resilient, tensions and vulnerabilities remain as a result of widening global imbalances, continued volatile capital flows, exchange rate movements and issues related to the supply and accumulation of official reserves," the IMF panel said in a statement after its meeting Saturday.
"Given that these issues are critically important... we call on the Fund to deepen its work in these areas, including in-depth studies to help increase the effectiveness of policies to manage capital flows." The statement from the International Monetary and Financial Committee, the policy arm of the IMF, stopped short of any specific call on China or others to change policies of using a low currency and accumulation of reserves to boost exports.
"There are frictions obviously," committee chair Youssef Boutros-Ghali said at the conclusion of talks at IMF headquarters in Washington. "These are being addressed. We have come to the conclusion that the IMF is the place to deal with these issues." IMF managing director Dominique Strauss-Kahn, when asked about the failure to come up with a stronger statement, said that "there is only one obstacle, and that is an agreement of the members." He added that "I don't believe action can be done in a way other than in a co-operative way." Recent IMF figures showed Beijing had currency reserves of 2.447 trillion dollars, the largest in the world and nearly 30 percent of the global total.
Washington maintains that China purchases large amounts of dollars to keep the yuan artificially low, which distorts global trade by boosting Chinese exports. This has done little to ease fears of a global currency war, with the United States and China facing off over Beijing's currency policies.
The final communiqué appeared to be a setback for the United States, which had urged the IMF to be a tougher cop on exchange rate policies and global imbalances, a position echoed by a number of Europeans and other officials. "One of the IMF's core functions is to undertake rigorous surveillance of the international monetary system," US Treasury Secretary Timothy Geithner said earlier in the day.
"Specifically, the IMF must strengthen its surveillance of exchange rate policies and reserve accumulation practices... excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process."
The finance ministers and central bankers from the IMF's 187 member states, including the G20, met in the US capital hoping to ease a fierce debate between rich and developing countries over trade-distorting currency policies. But China's top central banker on Friday rejected demands for a quick revaluation, declaring that the emerging giant would reform gradually rather than engage in "shock therapy." Central bank governor Zhou Xiaochuan said the yuan would move gradually toward an "equilibrium" level.