Bank of England Governor Mervyn King, warns that in 2013 a currency war could start among major economies. Some states would be able to depreciate even more their currency in an attempt to support economic growth, Wall Street Journal informs.
"I think 2013 will be a difficult year, in which several countries will try to weaken their currencies. Such an approach produces anxiety. Will other countries respond the same? what will happen?" King said.
In recent years, major economies have used devaluation to counter the impact of the crisis for competitive reasons. Major currencies fell due to lax monetary policies and measures such as purchases of financial assets by central banks.
A cheap currency theoretically incurs that exports become cheaper and more competitive and thus encourage economic activity.
The world economy needs "desperately" for countries with large trade surpluses, such as Germany, the Netherlands and China, to stimulate demand. These states have but little reason to do so, the Governor of the Bank of England stated.
Countries such as Switzerland, Japan and Brazil are facing difficulties in tempering the appreciation of their currencies, so as not lose the benefits of exports, King said
The situation is being aggravated by the fact that the traditional tools used by central banks to stimulate growth (low interest monetary policy) have been pushed close to the limit, the governor concluded.