World Leaders To Discuss Averting Currency War

At the height of the global financial crisis two years ago, world leaders braced for a trade war. Governments were desperate to save jobs and protect their industries from foreign competition.

In the end, they generally avoided protectionism. But there's a new danger now.When finance ministers gather in Washington, D.C., later this week, they'll talk about how to avert a currency war.

Governments around the world are disappointed that their economies are recovering so slowly, and they're seeking new ways to boost growth.

One option is to devalue their currencies.

With their products priced more cheaply in the world market, they get an edge over their competitors. But sometimes the competitors just follow suit.

The United States blames China for its low exchange rate, but Japan, Switzerland, South Korea, Taiwan and Brazil have all taken steps recently to cheapen their currencies.

When everyone devalues, the result is a currency war. There can be chaos in the world economy — even global deflation.

With the International Monetary Fund and the World Bank fall meetings this weekend, finance ministers will be urged to cooperate rather than compete on the currency front.

U.S. officials are calling on the IMF to impose some badly needed discipline.

The Institute of International Finance, representing the world's leading banks, this week urged governments to "hammer out an understanding," and let their currencies find their natural market value.

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