Brazil warns of 'currency war'

Press TV, Tue Sep 28, 2010 10:25PM

The world is facing a" currency war" as leading governments compete to reduce their exchange rate to solve economic problems, Brazil's finance minister warns.

"We're in the midst of an international currency war, a general weakening of currency," Guido Mantega said Tuesday in Sao Paolo in remarks reported by the Financial Times newspaper. "This threatens us because it takes away our competitiveness."

His comments follow recent interventions by central banks in Japan, South Korea and Taiwan in an effort to make their currencies cheaper and to improve export competitiveness.

Moreover, the dollar has fallen by about 25 percent so far this year against the Brazilian real. Such devaluation increases the price of Brazilian exports to the US market.

The United States has complained for years that China has held down artificially the value of the Renminbi, preventing it from mounting to reflect the strength of China's foreign exchange earnings from exporting, notably to the US market.

In recent weeks, feeling has grown on financial markets that the United States, which has already hinted at using World Trade Organization rules to strike back, may see a fall of the dollar as a way of countering the rising pressure.

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IMF downplays risk of 'currency war'

Press TV, Wed Sep 29, 2010 12:14AM 

 International Monetary Fund Managing (IMF) Director Dominique Strauss-Kahn says he does not see a "currency war" erupting but that such a scenario cannot be completely ruled out.

“I don't feel today there's a big risk of a currency war, but that's part of the downside risks," Reuters quoted Strauss-Kahn as saying on Tuesday.

His comments came a day after Brazil's Finance Minister Guido Mantega said, "We're in the midst of an international currency war. This threatens us because it takes away our competitiveness."

Goldman Sachs -- a global investment banking and securities firm -- reports that Brazil's currency, real, is currently the world's most overvalued major currency.
The real, after appreciating 40 percent from its value since last year, is currently at a 10 month high against the US dollar.

Many countries including Japan, Colombia, South Korea, Taiwan and Thailand have used currency devaluation to improve their economies and it is expected that this kind of intervention will be a main subject of discussion at the next meeting of the IMF, which will be held in the second week of October in Washington, DC.

One major currency dispute is related to the Chinese yuan. The US has been accusing China of devaluating its currency, for years. However the Chinese premier, Wen Jiabao, told business forum in New York last week, "If the (Yuan) appreciates by 20 to 40 percent according to requests of the US government, we do not know how many Chinese companies will go bankrupt and how many Chinese workers will be laid off and how many rural workers will go back to their homes and there will be major turbulence in Chinese society", AFP reported.

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