The head of the International Monetary Fund on Thursday said that China’s currency is “substantially undervalued” and that he feared countries had begun viewing exchange rates “as a weapon” in the competition for economic growth.
“We have been one of the institutions to repeatedly say that we believe the renminbi was substantially undervalued and that something had to be done to fix this problem,” IMF managing director Dominique Strauss-Kahn said in a news conference opening the agency’s annual meeting. “Many do consider their currency as a weapon, and this is not for the good of the world economy.”
His comments are part of an escalating tension over world exchange rates at a time when the surge of investment into emerging markets has forced up the value of local currencies – and threatened to make the exports of countries such as Brazil and Colombia more expensive.
China has fought that trend, keeping the value of its renminbi relatively stable – a policy that has stoked a political controversy in the United States and has now boiled over into talk of a global “currency war.”