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Author: American Enterprise Institute (AEI) resident fellow Desmond Lachman previously served as director in the International Monetary Fund's Policy Development and Review Department. He was also a managing director and chief emerging market economic strategist at Salomon Smith Barney.

With the world on the verge of a currency war, the need for macroeconomic policy coordination among the world’s major industrialized economies has never been more urgent. Yet the IMF, the organization best suited to orchestrate such coordination and whose very mandate is to avoid the recurrence of the beggar-my-neighbor type of policies that blighted the 1930 economic landscape, is conspicuously in denial about the risks of any such war. This has to be regretted since it heightens the dangers of a return to a world of competitive currency depreciation and capital controls that could be harmful to global economic growth and prosperity.

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An indication of the risks that uncoordinated monetary policy easing by the Federal Reserve, the Bank of Japan, and the Bank of England might pose to the global economy is indicated by the more than 10 percent real effective appreciation of the euro over the past six years. As Europe sinks ever deeper into recession and as it perseveres with aggressive fiscal austerity at the time of a domestic credit crunch, the last thing that Europe now needs is a stronger currency that threatens to choke off Europe’s only source of economic growth. Yet this is precisely what might be in store for Europe if the central banks in its major competitors are allowed to continue down an aggressive quantitative-easing path.

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One way to weaken the Euro would be for Germany to leave the union and go back to using the D-mark.

It seems the only money that has value will be the chinese shortly.

Quote: nerd wrote in post #3

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It seems the only money that has value will be the chinese shortly.

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