IMF chief looks to China for currency war resolution

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From Fazle Rashid
NEW YORK Oct 08: Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF) in his bid to prevent the currency war from escalating further urged China to allow its currency to rise in value. China and United States are locked in a bitter wrangle over the issue.
IMF chief sounded pessimistic saying "international coordination of economic policies that resulted from the global economic crisis is eroding". He said there is no domestic solution to a global crisis.
"Many are talking about a currency war, what we ( IMF ) want is the rebalancing of the global economy and this rebalancing cannot happen without a relative change of the value of currencies", the IMF chief was quoted as saying by the New York Times in a report today.
Responding to the call of the United States to do something about the renminbi, he conceded that the Chinese currency is substantially undervalued and something has to be done to solve this problem. China has flatly refused to heed to the call saying any change will not only be a disaster for China but for the whole world.
President of the European Central Bank Jean- Claude Trichet spoke in a similar vein but did not name China. I think that exchange rates should reflect economic fundamentals, that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability, the ECB president said.
Wen Jiabao, prime minister of China rebuffed calls for currency appreciation saying it would cause major social disruption. The currency issue has come as a big challenge for the IMF. It played a big role in European debt crisis. The IMF chief said rebalancing is likely to be most protracted challenges. The IMF chief listed three other problems that need attention. These are heavily indebted countries need to put fiscal reforms into effect without jeopardising growth, unemployment will remain high and very little has been done to overhaul banking supervision and crisis resolution.
ECB will phase out emergency support for eurozone financial system even as strategic differences with US Federal Reserve sent the euro sharply higher an analyst said. Larry Summers, the outgoing director of the White House National Economic Council opined US must ramp up spending on domestic infrastructures to drive the economic recovery.