The head of the Bank of England warned on Monday that too many countries were trying to weaken their currencies to offset the impact of the slow global economy and the trend could grow next year.
“You can see, month by month, the addition to the number of countries who feel that active exchange rate management, always to push their exchange rate down, is growing,” Mervyn King said in a speech.
“My concern is that in 2013, what we will see is the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy,” he told the Economic Club of New York. King did not identify any countries.
He also criticized what he said was backtracking by the Group of 20 leading economies to fix the imbalance between countries with trade surpluses and those with deficits, despite vows by the group to make rebalancing the world economy a priority after the financial crisis erupted.
Central banks, including the Bank of England, have kept interest rates very low and used unprecedented policies such as massive asset purchases to try to stir growth.
Pumping so much money into developed economies, however, can put upward pressure on currencies of emerging economies, hurting those countries’ exports.
Brazil and China, as well as more economically developed Japan and Switzerland, have taken steps to push down the value of their respective currencies in recent years.
The BoE has so far bought 375 billion pounds ($603 billion) mostly in government bonds to help lift the British economy out of the doldrums.
Countries with trade surpluses are often reluctant to boost domestic spending that would allow deficit countries to rebalance by exporting more.
“This is a problem which has to be tackled,” King said, citing a divide between some surplus and deficit countries within the euro zone.
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