Top financial officials warn about dangers to global economy from rising currency tensions

Financial officials warn against currency fight

WASHINGTON — World financial officials are warning that heightened tensions among nations over currency values pose a threat to a fragile global economy.

Leaders at the International Monetary Fund and the World Bank said Thursday that a conflict between China and the United States over the value of the Chinese yuan could spiral into a more serious economic problem.

Fears of a looming international currency war helped send the dollar to an eight-month low against the euro Thursday.

World Bank President Robert Zoellick told reporters that tensions over currencies could undermine investor confidence at a time when the world needs the private sector to bolster growth.

“If ever there were a time that we should not turn our backs on international cooperation, it is now,” Zoellick said at a news conference ahead of three days of high-level talks on global finance in Washington.

High unemployment in the United States and many other nations could pressure leaders to establish trade embargoes that could further strain the global economy.

Already, the U.S. House has approved legislation that would allow for economic sanctions on China and other countries found to be manipulating their currencies to gain trade advantages.

IMF Managing Director Dominique Strauss-Kahn said he expected tensions over currency movements to be a key topic when the 187-nation IMF and its sister lending agency, the World Bank, meet this weekend.

Strauss-Kahn also suggested China needs to move faster to address concerns about its undervalued currency if it wants more influence at the IMF. He echoed comments Wednesday by Treasury Secretary Timothy Geithner.

“If you want to have more say, more weight in the IMF, then you need to take more responsibility in the stability of the system,” Stauss-Kahn said when asked about Geithner’s speech Wednesday at The Brookings Institution.

Strauss-Kahn and Zoellick said a compromise solution to the currency dispute would reassure financial markets.

On Wednesday, Chinese Premier Wen Jiabao said that the world should tone down its attacks on Beijing.

“If the yuan is not stable, it will bring disaster to China and the world,” Wen told European business leaders.