Central Bankers Probe Chances Of A Currency War
I: Good morning.
DAVID WESSEL: Good morning, Renee. Welcome back.
: Thank you very much. Glad to be back. Tell us exactly, David, how countries would fight a currency war.
WESSEL: But if everybody tries to get their currency down, then, of course, nobody's currency goes up. And if everybody is trying to use their currency as kind of a - to get an edge on their trading partners, you could have bad stuff. I mean, the head of the IMF, Dominique Strauss-Kahn, said this week that this could represent a serious risk to the global recovery, it could be negative, damaging - everybody trying to do what's in their own interest but making the world economy worse off.
: Well, give us an example of what a government might be doing right now to weaken its currency.
WESSEL: And then, of course, a country can simply make its currency cheaper by printing more of it, and some people say that's what the Federal Reserve's about to do. The U.S. government isn't actively seeking to push the dollar down, but it's no secret that they like a slightly lower dollar because that would make it easier for us to export. So the basic problem is that for the world economy to rebalance, the U.S. has to export more and somebody has to export less. Nobody's volunteering for that, least of all the Chinese.
: Good. Let's bring the Chinese, then, into this conversation. U.S. politicians spend a lot of time complaining about China's currency. What do other countries - do they have a problem with China?
WESSEL: Basically, when one country decides to peg its currency or prevent this kind of adjustment, it makes it harder for other countries to adjust.
: And why wouldn't China want to let its currency get stronger? Is it the same reason, it wants to be able to export, and that would hurt its exports possibilities?
WESSEL: Yeah, basically. The Chinese are afraid. They're afraid of currency instability. They're afraid of being pushed around by the United States. And they're afraid if their export industries slow down, then they'll have a lot of unemployment and restlessness and political instability. The Chinese Premier Wen Jiabao said in Europe this week that it would bring disaster to China if the yuan, its currency, rose by 20 or 40 percent, as some people are suggesting. He said many of our factories will shut down. Our society will be in turmoil. Lay off. But no one's listening to that.
: Well, just briefly, this weekend's meeting, resolve any of these tensions?
WESSEL: I doubt it. There's a lot of posturing ahead of the meeting. They'll be some tough face-to-face meetings for domestic political reasons. China and the U.S. and everybody has a reason to talk tough in public. The U.S. is ratcheting up the pressure, but I don't have any reason to expect a resolution or any dramatic public confrontation. This is just one more step in long-running war.
: Okay. Conversation about the IMF meeting this weekend - David Wessel, economics editor of The Wall Street Journal and a regular guest here on MORNING EDITION. Thanks very much.
WESSEL: You're welcome.
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