Barack Obama has defended the policy of printing dollars on the day the head of the World Bank called for a new modified gold standard to end a deepening global currency and trade row.
The US President waded into the fight when he backed the US Federal Reserve's latest decision to pump a further US$600 billion (Dh2.2 trillion) into government bonds in a move that could depress the dollar and cause a destabilising flow of money into emerging economies.
"I will say that the Fed's mandate, my mandate, is to grow our economy," Mr Obama said in New Delhi yesterday during his visit to India.
"And that's not just good for the United States, that's good for the world as a whole. The worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth."
Mr Obama's administration has come under fire from China, Russia, Brazil and India, as well as leading Asian nations, for flooding their economies with too much cash.
Concerned by the weak dollar, they have complained that large-scale easing by the Fed has brought a surge of capital into their countries as investors look for higher yields. This has created a potential for asset bubbles and stoked inflationary pressure.
"The Fed's response was no better than throwing money from a helicopter," said Guido Mantega, the Brazilian finance minister.
As the row rumbled on yesterday, the World Bank president Robert Zoellick urged leading economies to adopt a modified global gold standard to guide currency movements.
He called for a new system to replace the existing one of floating currencies that in 1971 succeeded the fixed-exchange rate regime set up at the end of the Second World War. Mr Zoellick said it should "involve the dollar, the euro, the yen, the pound and [yuan]".
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Mr Zoellick said in a Financial Times article yesterday.
His comments came just 72 hours before the start of the Group of 20 (G20) leading and emerging economies summit in Seoul on Thursday, where the currency spat is likely to dominate the agenda.
Mr Zoellick's suggestion harks back to the Bretton Woods system set up in 1944 which reshaped global currency policy.
"Although textbooks may view gold as the old money," he said, "markets are using gold as an alternative monetary asset today."
Mr Zoellick described the G20 summit as "the latest test of international co-operation" in a period characterised by "talk of currency wars and disagreements over the US Federal Reserve's policy of quantitative easing".
Critics warn the policy will drive down the value of the dollar and spark a full-blown currency war.
The US has, in turn, accused China of deliberately keeping the yuan undervalued to boost exports.
Despite senior US officials repeating the mantra that they believe in a "strong dollar", Beijing insists Washington is trying weaken the greenback at a time when it is urging other countries to raise the value of their currencies.
"As a major reserve currency issuer, for the US to launch a second round of quantitative easing at this time, we feel that it did not recognise its responsibility to stabilise global markets and did not think about the impact of excessive liquidity on emerging markets," the Chinese vice finance minister Zhu Guangyao said in Beijing yesterday. Other economies have been caught in the crossfire of the US quantitative easing. Brazil, Japan and the euro zone have all seen their currencies rise in value in recent months, making their exports less competitive on world markets.
And yesterday Russia renewed its assault on the programme.
"Russia's president will insist … that such actions are taken with preliminary consultations with other members of global economy," said Arkady Dvorkovich, a Russian official who is preparing the country's position in Seoul.
* with Reuters