Tensions over money flows bode poorly for global economy

Sun Apr 13, 2014 1:11am EDT
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By Jason Lange

WASHINGTON (Reuters) - For a bunch of people who just agreed the global economy is doing better, top officials from the world's rich and poor nations sound rather worried.

For poor nations, the easy monetary policies in advanced economies are leading to big swings in capital flows that could destabilize emerging markets. For rich countries, the hoarding of currency by developing nations is blocking progress toward a more stable global economy.

Those tensions, which have been brewing for years, seemed to be rising as finance ministers and central bank chiefs from the Group of 20 economies gathered last week in Washington, as evidenced by harsh words from Washington and Delhi.

Both rich and poor say they are acting in their own self interest, and what makes the conflict so intractable is that both have very rational arguments.

Even though the G20 agreed the global economy was on better footing, the tensions suggested little progress ahead in rebalancing the global economy away from a state where the rich world borrows massively to buy things from the poor world.

"This is not a healthy place," Raghuram Rajan, governor of India's central bank, told a panel ahead of the G20 meeting.

Rajan has become a leading agitator for reforming the global monetary order, and he urged central bankers in advanced nations to avoid experimental monetary policies that might hurt the global economy.

He argued that years of easy money policies in the developed world had pushed emerging markets to hold bigger dollar reserves so they can intervene in currency markets to protect their economies from big swings in capital flows.   Continued...

Men, wearing masks, are reflected on a screen displaying a graph showing movements of Shanghai B shares outside a brokerage in Tokyo April 9, 2014. REUTERS/Issei Kato