The Institute of International Finance is urging countries to agree on a new currency pact to help balance the economy. The institution is concerned that a failure to develop a coordinated plan could lead to increased protectionism. Guido Mantega, Brazil’s finance minister warns that a currency war could be the result of each country’s efforts to prevent currency appreciation. While the World Bank President, Robert Zoellick, says a currency war in unlikely, it is clear that tensions are rising.
During financial uncertainty, I believe it is easy for countries to worry about their own economies rather than develop multilateral policies. In the case of small open economies that is not a problem. Large open economies, however, have a much greater responsibility to work with other large open economies. I agree that if this unilateral approach continues we may face a unique set of challenges.
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