IMF chief's warning of currency war 'real threat'

Dominique Strauss-Kahn on "rebalancing" of the global economy

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Global currency wars pose "a real threat" to economic recovery, the head of the International Monetary Fund, Dominique Strauss-Kahn, has warned.

In an interview with the BBC, he said currency disputes showed countries were not co-operating as well as they had during the financial crisis.

In recent weeks both the US and Europe have led criticism of China over its undervalued yuan.

Meanwhile, Japan has been forced to intervene to curb rises in the yen.

Separately, Indian Finance Minister Pranab Mukherjee on Thursday warned that imbalances in the global economy have become "not sustainable". But he urged major economies to shun confrontation to avoid a feared currency war.

Washington 'watching'

Mr Strauss-Kahn told the BBC that there were signs that countries were trying to use their currencies "as a weapon".

"The willingness of the countries to work together, which was very strong at the climax of the [financial] crisis is not as strong today," he said.

"'Currency war' might be too strong, but the fact the countries want to find domestic solutions to a global problem is really a threat to the recovery."

Start Quote

We have been saying for years that the [yuan] was undervalued”

End Quote Dominique Strauss-Kahn Managing director of the IMF

He added that China would have to revalue the yuan in order for the country's economy to reduce its reliance on foreign export markets.

Mr Strauss-Kahn agreed that China should act to raise the value of its currency "the sooner the better".

But he warned against placing too much importance on it.

"We have been saying for years that the [yuan] was undervalued," he said.

"[China] will go in this direction - the question is the speed. Certainly they can go faster than they are today.

"On the other hand we shouldn't believe that all the imbalances in the economy today will be solved if the value of yuan was changed."

The US has been at the forefront of criticism of China's currency policy.

It claims that China is keeping its currency artificially low in order to aid its exporters, hurting US competitors.

On Thursday, Washington reiterated that China needed to take steps relating to its currency.

"We are watching and evaluating the measures and the steps that they take. We continue to believe that China must take steps," White House spokesman Robert Gibbs said.

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