Text size:

  • Small
  • Normal
  • Large
Emirates Airline was named in the top 10 first class cabins by therichest.com. Find out what position it came here.

Global finance leaders fail to disarm currency time bomb

Global leaders fail to defuse a growing currency war between western nations and Asian countries.

Global leaders failed to defuse a growing currency war between western nations and Asian countries at meetings over the weekend. The deadlock sets the stage for further debate at talks next month between the Group of 20 (G20) leading and emerging economies over an issue that is being closely watched in the Gulf. The IMF said in a communique released after meetings in Washington that it would "deepen its work" on currencies and gave Dominique Strauss-Kahn, the head of the fund, a mandate to mediate disputes over currencies between the US, Europe, China and Japan. But the meetings dashed hopes when they failed to produce an accord between the warring parties.

"In a war, there is always a loser and in this situation there must not be a loser," Christine Lagarde, the French finance minister, said at the talks. Fears are rising that a skirmish of words pitting the US and Europe against China and other emerging economies in Asia will escalate into a battle that could lead countries to implement protectionist trade barriers. While the US and China have the most at stake, currency conflict could have wide-ranging effects for the Gulf, analysts say.

The main risk, they say, is if the dispute results in new barriers that staunch a burgeoning recovery in global trade. That could threaten a broader recovery for the region's commercial centres and for Dubai in particular. The IMF last week upgraded its forecast for economic growth in the UAE this year to 2.4 per cent from 1.3 per cent, citing high oil prices, Dubai World's US$24.9 billion (Dh91.45bn) debt restructuring agreement with 99 per cent of its creditor banks and a rebound in global trade.

"The interests of this region are in free trade," said Tim Fox, the chief economist at Emirates NBD. "The UAE is an open economy and trade was one of the factors that led the IMF to push up its forecasts for growth this year. To that extent I think the interests of this region are in the absence of things like currency wars, capital controls and protectionism that impinge on free trade." Fast-growing Asian countries want to keep the value of their currencies low against the dollar and euro, allowing buyers in Europe and the US to afford more Asian goods and giving a boost to the eastern continent's export-driven economies.

But the US and Europe are concerned that their own exporters are getting unfairly punished by Asian countries' interventions in markets to keep their currencies weak. The US has been putting pressure on China for months to allow its currency, the yuan, to fluctuate more freely against other global currencies. China in June dropped a temporary peg to the dollar and the yuan has since strengthened by 2.3 per cent against the US currency.

Coupled with Japan's recent intervention in markets to contain a rise in the yen, the yuan's modest strengthening has not gone far enough to satisfy the US, where legislators recently passed a bill imposing sanctions on countries found to be manipulating their currencies. The US Federal Reserve, meanwhile, is considering pumping dollars into the global financial system to stimulate its economy, a move not viewed favourably in Asia.

While trade dominates Gulf countries' concerns, they are also watching the currency wars because of their large stores of foreign assets bought with decades of oil savings. Few observers expect the region's sovereign funds to exercise political or economic sway in the debate but Sven Behrendt, the managing director of Geoeconomica, a political risk management company based in Geneva, said they had the latitude and size to do so.

"We estimate that the Gulf region holds an accumulated $1.3 trillion in foreign exchange reserves and financial assets in sovereign wealth funds," he said. "That is somewhat more than the foreign exchange reserves of Japan and more than half of China's foreign exchange reserves. That means the Arab world is a player in this currency war and as such will also determine how it is going to evolve." Central bankers from Switzerland and Canada also told bank executives at the weekend talks they could expect further regulation after the passage of new supervisory rules last month. The Basel III rules required banks to build bigger financial backstops to withstand crises, although the tougher standards were criticised by many observers as not going far enough to protect the global banking system.

Coming out of the IMF-World Bank meetings without a resolution, the next set of high-level talks where leaders could try to make peace are next month's G20 meetings in Soeul, South Korea. afitch@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 A sign points the way to an outdoor market popular with German visitors on the Polish side of the German-Polish border. Sean Gallup / Getty Images

In pictures: A decade since the European Union went east

May 1 will mark 10 years since the European Union expanded east, taking in countries like Poland, the Czech Republic and the Baltic states as new members. And though the border region between Germany and Poland is flourishing with trade and cultural exchange, the open border has also brought a sharp rise in crime.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National