Seoul G20 Summit to Grapple With Currency Wars

With the currency war between the U.S. and China show signs of spreading to Japan, the European Union and emerging economies, international financial institutions have issued strong warnings of adverse effects.

With exchange rates growing into a hot topic in the world economy, global attention is rising over whether the Seoul G20 summit next month will find solutions.

In a news conference before the annual meetings of the World Bank Group and the International Monetary Fund in Washington Friday, World Bank President Robert Zoellick warned that if tension over currencies remains unchecked and develops into trade disputes or protectionism, the world will face another Great Depression.

He urged the world to cooperate in resolving the problem, saying, “History shows that there is no future in beggar-thy-neighbor policies.”

IMF Managing Director Dominique Strauss-Kahn also told reporters the same day that many are talking about foreign exchange wars, adding that though it sounds like a military term, many countries use their currencies as a policy weapon.

The exchange rate war between the U.S. and China is apparently spreading across the globe.

EU President Herman Van Rompuy and Chinese Premier Wen Jiabao canceled a joint news conference due to differing opinions over the currency issue.

Wen stuck to his firm stance, saying, “A rapid increase in the yuan’s value could prove disastrous to the world.”

Emerging economies such as Brazil, Peru, Thailand and India are also set to join the war by pursuing measures to prevent their currencies from appreciating.

This development is likely to prompt major economies to begin efforts on exchange rate compromises at the IMF•World Bank annual meetings and the informal meeting of G7 countries slated beforehand. Given China`s absence in such meetings, however, major compromises will likely be made at the Seoul G20 summit, meaning Korea’s strong leadership is needed more than ever.

With currency debates at the center of global attention, all eyes will be on the meeting of G20 finance ministers and central bank chiefs Oct. 22-23 in Gyeongju, North Gyeongsang Province. This is because initial negotiations will be made at the meeting where a draft communiqué for the Seoul summit will be drawn up.

The meetings will be chaired by Strategy and Finance Minister Yoon Jeung-hyun. U.S. Treasury Secretary Timothy Geithner, Chinese Finance Minister Xie Xuren and European Central Bank President Jean-Claude Trichet will attend.

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