Currency war will take longer to sort out, say experts

With currency row spilling over to countries other than US and China, experts say the vexed issue needs to be tackled on a gradual process as each country has its own interests to protect.

In the backdrop of emerging economies seeing huge capital inflows, the strategies to address currency-related issues would differ from country to country, they said.

Harukiyo Hasegawa, a professor at Japan's Doshisha University, said it would not be "easy" to tackle the issue of currency devaluation. "... It (addressing currency issues) may proceed gradually, as the Asian countries have their own agenda for their own growth and development.

"The stages, models and strategies differ from country to country even among themselves," Hasegawa, who is also dean of global MBA at the university, told PTI.

Hasegawa was in the city recently for the Euro Management Studies Association (EAMSA) conference at the International Management Institute (IMI).

The vexed issue of currency devaluation has been at the forefont of international fora, with US mounting pressure on China to let yuan appreciate. America has alleged that lower peg of the Chinese currency has resulted in high trade surplus in favour of the communist country.

G-20 countries, at their recent summit in South Korea, had pledged to act against competitive devaluation of currencies to ensure balanced global economic growth.

On Friday, US Federal Reserve chief Ben Bernanke said that international monetary system was not working as well as expected due to "currency devaluation by surplus countries". These comments were seen as a veiled reference to China.

The issue of competitive currency devaluation assumes importance, since it is no longer confined to just US and China. Even Japan and South Korea were reported to have interfered in the forex markets to stem the appreciation of Yen and Won respectively.

Commenting on the currency controversies, Crisil's chief economist D K Joshi said that countries have their own interests. "China is resorting to devaluation because of its huge labour force and hence employment to them, US has its own interests, some middle ground has to be found," he said.

On other hand, loose monetary policies and stimulus efforts in advanced nations has led huge foreign capital inflows into emerging economies, posing the risk of their currencies appreciating.

"If there is deluge of capital inflows and it results in appreciation of local currency too rapidly, some kind of intervention is necessary...," Joshi said.