World finance leaders at the IMF and World Bank meetings in Washington last week urged nations to continue their commitment to multilateral cooperation on currency issues. In his opening remarks, IMF Managing Director Dominique Strauss-Kahn outlined four risks to the global economy: public debt, a jobless recovery, inadequate regulation of the financial sector, and the vanishing of commitment to cooperation. Rising currency values have resulted in some countries taking unilateral actions to attempt to push down the value of their currencies to protect their exporters. Many governments consider China’s policy on managing its currency to be unfair, claiming China’s undervalued currency allows it to increase its exports at the expense of its trade partners. Rising frustration and unilateral actions are raising concerns about potentially damaging trade disputes and so called currency wars, but Mr. Strauss-Kahn highlighted that there is “no domestic solution to a global problem.”

Source: imf.org

Date: October 8, 2010

Link: http://www.imf.org/external/mmedia/view.aspx?vid=629252460001

Questions for Discussion:

1. Discuss the advantages and disadvantages for a nation when its currency is declining in value.
2. Analyze the advantages and disadvantages of using multilateral forums such as the International Monetary Fund (IMF) and the World Trade Organization (WTO) to address currency disputes.
3. The U.S. House passed a bill that would permit the United States to levy tariffs on goods produced by countries found to have undervalued currencies, a legislative action aimed at China. If this bill were to be passed by the Senate, would it likely be effective? Discuss the possible implications of this legislation.
4. IMF Managing Director Dominique Strauss-Kahn stated that there is “no domestic solution to a global problem.” To what extent do you agree with him?

Related Article: Lauricella, T. (2010, October 8). Dollar’s fall roils world. Wall Street Journal, pp. A1, A10. (Retrievable online at http://online.wsj.com/article/SB10001424052748704696304575538334028041428.html)