Treasury Secretary Timothy F. Geithner said a “damaging dynamic” of large economies keeping their currencies undervalued can cause quicker inflation and asset bubbles, and restrict growth.
“More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies,” Geithner said in remarks prepared for a speech at the Brookings Institution in Washington today. “The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports.”
Global exchange-rate policies are a source of contention ahead of this week’s meeting in Washington of the International Monetary Fund, World Bank and Group of 20 officials. Brazil’s Finance Minister Guido Mantega last week warned of a “currency war.”
“It is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange-rate systems,” Geithner said. “This is particularly important for those countries whose currencies are significantly undervalued.”
Geithner said the “greatest risk to the world economy today is that the largest economies underachieve on growth.”
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