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Squabble over currency control

New Delhi, Oct. 8: Brazil, Russia India and China — the emerging market front-runners collectively called Bric — will resist US pressure to weaken mechanisms for currency control at the annual IMF-World Bank meetings that have begun in Washington even as Japan says it will intervene to halt the yen from hardening against the dollar.

Last month, Japan intervened for the first time in six years to stem the yen’s surge which is starting to hurt its exports. China has limited the yuan’s rise to about 2 per cent against the dollar, though it had promised to make its currency more flexible.

Global policy makers have been vehemently arguing over currency controls following the dollar’s broad-based decline that are encouraging emerging economies to cap their currencies, much to the anger of the rich nations who fear the global economic recovery may be badly hit.

The US has alleged that large economies keeping a lid on their currencies could accelerate inflation, generate asset bubbles and hit growth.

According to agency reports, Russia’s deputy finance minister Dmitry Pankin had said the Bric nations felt the exchange rates weren’t themselves a problem — they are a result of deeper processes, such as saving and investments.

India has called for greater engagement among nations in resolving the imbalances in the global currency markets and urged countries not to resort to confrontation.

“My approach is that we should try to engage the countries into negotiations and build up a consensus through which the matter could be resolved,” finance minister Pranab Mukherjee said in the US. He was responding to the possibility of currency wars following the reluctance of China to appreciate its currency.

Ahead of the Fund-Bank meeting, he said “it (issues concerning revaluation of the Chinese currency) cannot be resolved through confrontation. We should engage in the process of building up consensus.”

Mukherjee warned that sharp fluctuations could have serious implications for the global financial system. “Unlike in the past, in the present age of globalisation such fluctuations are more likely to have serious cross-border social and economic implications. Governments and central banks, therefore, have to play a key role in supervising and regulating markets, collectively and individually in their respective economies.”

Mukherjee said the inflows of FIIs and FDIs in India had not distorted market sentiments, and there was no need for intervention. It is the Reserve Bank of India’s duty to monitor the situation and “when it is necessary, to intervene appropriately. But, I do not consider that situation has arisen in the Indian economy today”.

Finance secretary Ashok Chawla has said that competitive devaluations of currencies “is a form of protectionism that is very perverse, and if everyone starts doing it, the whole architecture of the system breaks down.”

The rupee, meanwhile, fell sharply by 23 paise to close at 44.43 against the dollar on fresh buying of the US currency by banks and importers amid weak equity markets.

Yesterday, the rupee had closed at a 25-month high of 44.12.

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