MercoPress. South Atlantic News Agency

IMF head sees “no major danger” of escalation of currency devaluations

Strauss-Khan however admits the Chinese Yuan is undervalued

International Monetary Fund Managing Director Dominique Strauss-Kham sees no major danger of an escalation of currency devaluations as countries seek to boost economic growth.

“I don’t feel today there’s a big risk of a currency war, but that’s part of the downside risks” Strauss-Kahn told reporters at a briefing Tuesday in Washington. “It will be one of the questions that will be very much discussed” in coming meetings of finance ministers and chiefs of state of the Group of 20.

Japan this month sold the Yen for the first time in six years to spur exports and economic growth, joining countries across Asia and Latin America that have tempered gains in their currencies against the dollar.

Brazilian Finance Minister Guido Mantega warned of a “currency war” and said that his government will buy all “excess dollars” in the market to curb the Real appreciation.

Strauss-Kahn said currency intervention is unlikely to be successful. Too small an intervention doesn’t have any effect, he said, and too large a move can trigger retaliation by trading partners. “It’s clearly not a global solution,” he said.

The IMF still sees the Chinese Yuan as “undervalued,” Strauss-Kahn said, though it acknowledges that China is “slowly” shifting its economy toward greater reliance on domestic demand exports.

China has incurred international criticism for limiting gains in its exchange rate. The Yuan has risen about 2% versus the dollar since the People’s Bank of China in June pledged greater flexibility in the currency after pegging it around 6.83 for two years.

Strauss-Kahn forecast “very uneven, still fragile” global growth and said Europe’s rate of expansion, at about 2%, probably won’t suffice to create jobs. He said Ireland and Portugal have “real fiscal problems that they need to fix.”

John Lipsky, the No. 2 official at IMF said global growth in the second half of the year will fall short of the IMF forecasts of a 3.75% annual rate. “This sluggishness will persist into early 2011” he said in comments released Tuesday.