Excessive forex intervention could lead to tensions in global currency markets and countries should try to defuse this to avoid trade conflicts, World Bank President Robert Zoellick was quoted as saying.
Still, he said that emerging market officials should consider various measures to control the short-term capital flowing from advanced economies in pursuit of higher returns, but he did not give any specific suggestions on how to do so.
Zoellick told Japan's Nikkei newspaper that Japan's currency intervention last month was an indication of the tension in currency markets, adding that it was a symptom of larger problems that reflects "more Japan's response to what's going on in China and other currency markets."
"I'm neither endorsing them nor criticizing them," Zoellick told the Nikkei in an interview published Thursday on its English website, referring to countries that have stepped into markets to weaken their currencies.
He said it was important that countries try to work on this issue and avoid trade or currency conflicts as the global economic recovery is fragile.
On China's yuan, he said: "I have said that I believe that the Chinese currency should appreciate ... But I've also said that I don't believe that the Chinese currency appreciation is a silver-bullet solution."
There is no scientific answer for how much China's yuan should rise and it would be in China's own interest to aim for an economy led by domestic demand, he said.
Countries such as the United States and Japan need to act to deal with the rebalancing issue, Zoellick also said.
But he also said U.S. currency policy is best left to U.S. officials.
The global exchange rate system and rebalancing world economic growth will be an important topic at International Monetary Fund, World Bank and Group of Seven meetings this week.
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