A global realignment of currencies is needed,
covering not only fast-growing Asian economies but also
commodity producers, the Asian Development Bank president said
Haruhiko Kuroda told Emerging Markets that a new
global currency agreement is needed, involving the G3
currencies (the dollar, the euro and the yen), plus those of
the emerging Asian economies and of commodity producers.
Shifting attention from the yuan,which has been a focus of
interest at the annual meetings, Kuroda argued that without
such an agreement the most dynamic emerging economies will face
intense inflationary pressures that could be difficult for them
to deal with.
These economies will continue to grow much more
rapidly than those of the G3. Unless they accept appreciation
of their currencies, they will have much higher
inflation, he told Emerging Markets.
His concern was echoed by Anoop Singh, director of the
IMFs Asia and Pacific Department, who told Emerging
Markets that Asian economies need to accept currency
appreciation as part of a package of reforms aimed
at economic rebalancing.
Kuroda accepted that the yuan is among the Asian currencies
that need to appreciate. I personally think that the
Chinese yuan is undervalued, but by how much is difficult to
say, he said.
But he also drew attention to the Korean won, which he said
had depreciated by 50% against the dollar, the yen
and the euro after the financial crisis. It had risen since,
but is still low.
Some Asian currencies including the Thai baht and the
Malaysian ringgit, which have risen by 10% against the dollar
this year have begun to adjust. But the process of
currency alignment needs to go much broader and deeper, Kuroda
A global realignment to be coordinated by the G20 and
the IMF should embrace not only the currencies of
Asias dynamic industrializing economies but also those of
commodity producers in Asia, Latin America and Africa, he
Commodity producers have enjoyed strong improvement in their
terms of trade in recent times, and can expect to enjoy further
improvement in the future, he said. These countries too will
face growing inflationary pressures unless they accept
appreciation of their currencies, he said.
Economic rebalancing in China will take time,
Kuroda said. Such adjustment will require not only
realignment of Chinas currency but also the
creation of social safety nets to spur consumption, as well as
corporate governance reforms to bring about redistribution of
income from the corporate to the household sector, he
Chinas economy will likely continue to grow at
anything between 8-10% annually as productivity increase and so
some adjustment of the nominal exchange rate of the yuan will
be necessary, he suggested. But a one-shot realignment is
Kuroda warned against over-reliance by Asian emerging
economies on capital controls to counter heavy inflows of
capital from advanced economies. Such controls can distort both
domestic and international investment decisions, he