Currency wars

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9 November 2010 last updated at 00: 14 GMT by Andrew Walker economics correspondent of the BBC World Service Dominique Strauss-Kahn said cooperation between countries had weakened since the financial crisis is "Currency war", Managing Director of IMF and the Brazilian Finance Minister, among other things called.

IMF chief Dominique Strauss-Kahn told the BBC last month, that it use signs that countries tried their currencies "as a weapon".

For its part, Brazil Guido Mantega said devaluations of advanced countries was a new trade war.

"We are in the midst of the war an international currency," he told a meeting of the industrial leadership in September. "This threatens us because it takes away our competitiveness."

But what does this all mean?

There are some main elements, two of them are fairly new, but the first is a long existing one.

It is to limit China's policy of the administration of its currency and its movement against the US dollar.

It has been through several stages and during the financial crisis, China went back to keep the Yuan rise.

China tries the value keep Yuan

Move since shortly before the Toronto G20 Summit in June, it has facilitated the controls and allows the currency against the dollar, but of less than 2.5% (from now). And because the dollar has fallen, the Yuan against many other currencies as well as deleted.

Why of the Chinese restraint so that the Yuan rise much? A fear of losing jobs in export industries, that less would become competitive.

The increase compared with the dollar was not enough to meet United States is since a long time existing complaint that tampered with China its currency to gain an unfair advantage. The cry is: "Will cost American jobs."

Many in the United States complain about China, but the hands are entirely clean? Some in the rest of the world does not say.

The dollar has fallen in recent months dramatically, low interest rates, so investors have sought higher returns in emerging markets.

You must buy the currency of the country, to make these investments. Tends to its value push-up, while the dollar selling it tends, fall.

And the effect is accentuated reserve by the Federal other policy known as quantitative easing. The Fed buys financial assets and money that it pays with, must be invested somewhere.

The weak dollar has an advantage for the United States - it is this question again competitiveness. It should help American exporters.

The United States have a large trade deficit, so more exports could help the fix. Some even claim that the Fed policy to the weakening of the dollar and help, by exporting more to restore the US economy are used.

The Fed have led to a wave of money-seeking opportunities in the emerging policy. That tends to undermine their currencies push-up, their competitiveness.

It is also a risk of bubbles in the financial and real estate markets. And capital inflows can in reverse - as in the Asian crisis in the 1990s.

As to the third element in the currency of "War" of the resistance of the emerging markets, and some developed countries.

Brazil and Thailand have used tax measures to slow inflows. Japan, South Korea, and others have intervened in the currency markets buy foreign currency in an attempt to rise the own interrupt.

There is a view that they just have to live with him. The upward pressure on the currencies of many emerging markets reflects the fact that they are strong growing more than in the United States.

It's hard for them to manage, but the underlying reason is that she is going relatively well.

The currency of war is closely associated with a different theme, which many economists has been worrying for several years has the global economic imbalances,.

At the international level, it is the trade, which is unbalanced. The thing is the "current account balance", which means trade were most commonly the heart is actually and send services as well as some financial elements, including remittances, migrant workers home.

Typically trade for most is responsible but the current account imbalance.

Some countries have large trade surpluses, particularly China, Germany, Saudi Arabia and Russia. The United States is the country's large deficit.

In some countries in the eye of the storm European strong deficits admits - Greece, Portugal and Spain. Britain has also a deficit, although as a proportion of national income, it is not too large.

The other side of the international imbalances is high savings at home with a surplus country like China and relatively low savings in a country such as the United States deficit.

Households increased deficit savings in the United States, United Kingdom and other countries, because consumers are less in the course of the financial crisis by borrowing.

But international imbalances also reflect how much governments borrow and in many countries deficit, increased, partly compensate the increase in private savings.

Why does this matter? These countries where store desperately want to more export has increased. You want more foreign sell consumers at home drawing in their Horne offset.

This applies to the United States, Great Britain, and many others. You could more easily, if consumers in China and the other surplus countries prepared more imported goods were, buy.

An increase in the Chinese currency would not a panacea, but it would probably help.