Lipsky Says Currency Values Not Impeding Recovery Oct. 20 (Bloomberg) -- Major currency valuations aren’t hampering the global economy’s return to growth, the No. 2 official at the International Monetary Fund said today.
“In the near term, the currency relationships among the major trading currencies are not an impediment to recovery at this time,” IMF First Deputy Managing Director John Lipsky said in an interview on CNBC. He said the IMF monitors currencies “on a multilateral, inflation-adjusted, medium-term basis.”
Lipsky’s comments contrast with concerns by policy makers from Canada to France that the dollar’s depreciation against their currencies hinders exports. European Central Bank President Jean-Claude Trichet yesterday cautioned against “excessive volatility” in foreign-exchange rates and the Bank of Canada today amplified a warning about the Canadian dollar’s appreciation.
Over time, currencies may contribute to a necessary shift in growth sources as “surplus countries that have been relatively focused on external demand have to shift to internal demand and the deficit countries, the opposite,” Lipsky said.
Still, there’s a “real danger” that countries will renew efforts to accumulate foreign currency reserves, Lipsky later said at a conference organized by the Federal Reserve Bank of San Francisco in Santa Barbara, California. Such a build-up could “dampen the recovery.”
Euro’s Rise
The euro has gained almost 20 percent against the dollar since February, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II.
“Excessive volatility” of currency rates is “bad for economic development,” Trichet said in an unscheduled appearance at a press conference late yesterday after a meeting of euro-area finance ministers in Luxembourg.
“It’s a problem which worries us,” said Luxembourg’s Jean-Claude Juncker, who led the talks.
The Canadian dollar posted gains for the past three weeks as it headed for parity with its U.S. counterpart for the first time since July 2008. It fell the most in four months today after the central bank’s comments.
The “worst is passed” for the global economy, which has started a “healing process,” Lipsky said at the San Francisco Fed conference. Asia is poised to emerge stronger than any other region, he said.
‘Considerable Challenges’
Still, “the global economy faces considerable challenges” and the recovery could stall if demand doesn’t pick up, he added, calling on governments to keep policy support until growth is secured. The IMF’s “biggest concern” is a “successful handoff from public-sector demand to private- sector demand” he told CNBC.
The Washington-based lender earlier this month said it expects the world economy to expand 3.1 percent in 2010, after a 1.1 percent contraction this year.
Lipsky also said the IMF is studying, at the request of Group of 20 nations’ leaders, “whether taxation in the financial system in general would make sense and if so, how should it be done to mitigate the risks created by the financial system.”
