CHRONIC trade surplus in China has created "a currency war" where many global currencies hang in the balance with Chinese yuan low and exports cheap imbalance trade with the US that hurts the global transport and logistic sectors, says the International Monetary Fund (IMF).
IMF head Dominique Strauss-Kahn said the willingness of countries to pull together at the start of the recession has weakened. "`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," he said.
Competitive devaluation, or "currency war" as coined by the Brazilian Finance Minister Guido Mantega, is widespread with Switzerland, Japan and South Korea accused of depressing their currencies in a bid to cheapen exports and improve world market share.
China defends its position with exchange currency reforms begun slowly to avoid abrupt export slowdown.
But fourth quarter predictions from Merrill Lynch Wealth Management EMEA head Bill O`Neill will lessen the threat of currency war, said Mr Mantega. China is likely to speed up in growth despite its quarter previous slowdown and therefore see an appreciation of its currency fighting off claims of protectionism, he said, according to London`s Financial Times.