NEW YORK (Reuters) – Bank of England Governor Mervyn King said on Monday he was concerned that countries will increasingly resort to “actively managed exchange rates” next year, in place of domestic monetary policies, if the global economy remains unbalanced.
King outlined the threats facing the struggling UK economy, including the euro zone crisis and the U.S. “fiscal cliff,” the full effects of which he expects the United States to avoid. But in a speech, he chose to highlight growing worries over central banks using their policies to influence domestic currencies.
If countries do not work to rebalance the global economy, “my concern is that in 2013, what we will see is the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy,” King told the Economic Club of New York.
“You can see, month by month, the addition to the number of countries who feel that active exchange rate management, always to push their exchange rate down, is growing.”
Central banks, including that of England, have kept interest rates very low and used unprecedented policies to battle recession. Such easing in developed economies, however, can put upward pressure on currencies of emerging economies, hurting those countries’ exports.
“With interest rates at very low levels, with balance sheets having expanded a great deal and with the inability of monetary policy to indefinitely postpone the adjustments required to bring about rebalancing, some other mechanism will be needed,” King said.
King’s warnings echo those made in October by U.S. Federal Reserve Chairman Ben Bernanke, who delivered a blunt call for certain emerging economies to allow their currencies to rise.
(Reporting by Jonathan Spicer and Edward Krudy; Additional reporting by Steven Johnson; Editing by Chizu Nomiyama)
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BoE’s King warns on growth of managed exchange rates
