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Policymakers at this weekend’s International Monetary Fund meetings in Washington warned about a currency war and the dangers of failing to co-operate to cut global imbalances.

Dominique Strauss-Kahn, IMF managing director, told the meeting on Friday that the fund would seek to issue “spillover reports” showing how each -country’s policies were affecting others – raising the prospect of another attempt to co-ordinate the policies of the large economies to reduce global imbalances.

“The idea that there is an absolute need in a globalised world to work together may lose some steam,” Mr Strauss-Kahn said.

“That is why we need more initiatives on systemic stability.”

Officials familiar with the plans said they would probably involve the IMF conducting the annual Article 4 health-checks of five big economies – the US, China, Japan, the eurozone and the UK – simultaneously, with the IMF’s managing director personally involved, and then publishing analyses of the impact of each economy on the others.

The debate on currencies has focused on the Chinese exchange rate, which Beijing has allowed to rise only slowly by intervening in the currency markets.

Zhou Xiaochuan, governor of the People’s Bank of China, said the definition of a currency war was not clear but added: “The difference is that for China we view it as gradualism ... rather than shock therapy.”

But the prospect of renewed quantitative easing by the Federal Reserve has weakened the dollar against other currencies. The Bank of Japan’s announcement this week that it would pursue weaker monetary policy appears to have been outweighed by speculation that the Fed will return to pushing more dollars out into the markets.

The countries that make up the Group of Seven leading economies, due to meet on Friday evening, have generally focused their criticism on China and declined to blame each other for misalignments in currencies.

Tim Geithner, US Treasury secretary, this week declined to criticise Japan for its intervention against the yen last month, which Tokyo has portrayed as a stabilisation of disorderly markets.

On Friday Yoshihiko Noda, Japanese finance minister, said the intervention was “aimed at curbing excessive foreign exchange movements, not meant to guide[the yen] to a certain level over the long term”.

The currencies issue seems likely to dominate next month’s meeting of heads of government of the G20 countries, meeting in South Korea.

George Osborne, UK chancellor of the exchequer, said on Friday: “We do need to move towards more market-oriented exchange rates that reflect fundamentals, and the G20 and IMF have a role in helping make that come about.”

The G20 has asked the IMF to assess its member countries’ economic policies and how they will contribute to global rebalancing.
 

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New World Order...Fabian Society...
We should tell 'Domonique' to kiss our 'collective' azzez in Macy's window.
 
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