IMF Warns On Currency War

The IMF head said that the growing trend towards devaluing currencies may obstruct global economic recovery, as the dollar fell further Wednesday.

Predictions that Federal Reserve is once again planning measures that can lower the dollar's value, combined with China's refusal to allow Yuan to rise quickly, have made currencies the hottest topic at the summit of finance chiefs from G7 countries.

Few people expect any meaningful agreement at the G7 meeting or the IMF summit that follows.

Commenting on US policy, Nobel economics laureate Joseph Stiglitz said, "It's doing nothing for the American economy, but it's causing chaos over the rest of the world. It's a very strange policy that they are pursuing".

The dollar suffered more losses Wednesday, plummeting to an eight and-a-half month trough versus a basket of currencies and moving towards a fifteen year low against the yen.

The trend pushed Tokyo to intervene last month and devalue the yen, while some other countries have either followed its footsteps or are planning to.

Dominique Strauss-Kahn, the managing director of IMF told the Financial Times, "There is clearly the idea beginning to circulate that currencies can be used as a policy weapon". He further added, "Translated into action, such an idea would represent a very serious risk to the global recovery ... Any such approach would have a negative and very damaging longer-run impact".

The IMF, which will hold its twice-yearly summit this weekend in Washington, is also likely to talk about foreign exchange measures as part of its goal to get nations working towards balanced global development.