Group of 20 leaders meeting next month ought to discuss a plan to strengthen undervalued currencies, similar to the Plaza Accord in 1985, Harvard University historian Niall Ferguson said.
“The real currency war is actually between Chimerica -- China plus America -- and the rest of the world,” Ferguson said in an interview at the World Knowledge Forum in Seoul. “It would be much better to have some kind of Plaza-like international agreement and I very much hope that at the G-20 summit in Seoul next month this will be No.1 on the agenda.”
The Plaza Agreement reached in 1985 prompted a decline in the U.S. dollar against its Japanese and German counterparts.
Brazilian Finance Minister Guido Mantega said last month that a “currency war” was under way, in which economies are weakening currencies to support exports. At an International Monetary Fund meeting this month in Washington, finance chiefs failed to narrow differences over currencies, with China accused of undervaluing the yuan and low U.S. interest rates criticized for flooding emerging markets with cash.
“Currency appreciation is necessary,” Ferguson said in the interview late yesterday. “If you insist on building up a vast horde or dollar-denominated reserves you will create distortions in the world economy that will ultimately come back and bite you.”
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