Bank of England chief warns of ‘currency war’

Bank of England governor Mervyn King has warned that tensions between countries over their respective exchange rates could degenerate into trade protectionism amid talk of a potential ‘currency war’.

Ahead of a meeting of G20 finance ministers and central bankers in South Korea this weekend, King told British business leaders late on Tuesday that “the need to act in the collective interest has yet to be recognised”.

“Unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing” of economies.

“That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world. Every country would suffer ruinous consequences — including our own.

“But, to borrow a phrase, in order to be tough on protectionism, we need also to be tough on the causes of protectionism.”

King called for a “grand bargain among the major players in the world economy”.

The world needed “a bargain that recognises the benefits of compromise on the real path of economic adjustment in order to avoid the damaging consequences of a move towards protectionism.

“Exchange rates will have to be part of such a bargain,” he stressed.

The United States and European Union, trying to export their way to economic health amid lacklustre domestic demand, accuse China of significantly undervaluing the yuan to boost its own exports.

China says it is being made a scapegoat for US domestic problems.

And it points out that expectations of US “quantitative easing”, a move to pump more dollars into the market, are swamping emerging markets with destabilising capital inflows as investors chase higher yields.

 

Oxfam calls for writing off $55 bn Pak debt

Oxfam, the international aid agency, has called for Pakistan’s debts to be dropped because of the destruction caused by the flooding and the massive costs of relief and reconstruction.

The agency said some of the world’s wealthiest countries are getting more from Pakistan in debt repayments than they have given to help victims of the floods that devastated the country.

Pakistan’s foreign debt is estimated to be 55 billion dollars ($55.2 billion) and it is expected to pay nearly 3 billion dollars in repayments this year. Foreign governments have committed about half that amount to the Pakistan flood relief effort. Oxfam said only one-third of the United Nations Pakistan flood appeal had been funded.

Story continues below The call for debt cancellation coincides with a meeting in Brussels today of the Friends of Democratic Pakistan, n group which includes Australia.

Oxfam said France, Japan, South Korea and China – all members of the group – had received more money from Pakistan in repayments than they had given as flood relief.

”France received 62 million dollars in debt payments in the first nine months of the last financial year, more than 15 times its direct contribution to the flood response. Japan received 111 million dollars, more than five times its contribution to the response. South Korea received four times as much, and China three times as much.”

Australia has given about 75 million dollars in aid. Oxfam said it does not receive any debt repayments.

Flooding in Pakistan in July and August cut a swathe of destruction across the country. At least 1600 people were killed and about 20 million displaced.

The head of Oxfam’s humanitarian campaigns, Consuelo Lopez-Zuriaga, said it was ”a moral and economic absurdity” that France and Japan were receiving large debt repayments while poverty-stricken Pakistanis were struggling to rebuild.

Pakistan has estimated that reconstruction could cost as much as 45 billion dollars.