BRASILIA, (Reuters) – Failure by the Group of 20 nations this week to achieve a global solution to the problem of currency imbalances could lead to a trade war, Brazil’s Foreign Trade Secretary Welber Barral said.
Brazil is working towards a multilateral resolution to imbalances which have resulted in massive capital flows going into emerging markets, boosting their currencies and making exports expensive, Barral said in an interview late on Monday.
Attempts at restricting capital flows, such as those Brazil adopted last month, have done little to curb large inflows of dollars which are only likely to increase with the Federal Reserve’s decision last week to pour an additional $600 billion into the world’s largest economy.
Leaders of emerging market economies said the Fed’s move made any substantive deal on cutting global economic imbalances less likely at this week’s G20 meeting in Seoul, South Korea.
“Our proposals … are multilateral commitments. If (a deal) is not reached there is a risk that every country seeks individual solutions which can be costly for everyone,” Barral told Reuters, adding these could range from currency to trade measures.
Asked about the risks of a trade war, he said:
“If there is no compromise in Seoul, this could happen.”
World leaders may be able to agree to new financial regulations and praise an IMF power sharing deal at a G20 meeting in Seoul this week, but tensions over global imbalances and how to deal with them are simmering.
Countries around the world from Colombia to Japan are acting to keep their currencies from appreciating as investors, turning their back on low interest rates in developed economies, pour money into higher-yielding markets.
