Fred Bergsten discussed currency manipulation and its severe impact on the global financial structure during the twelfth annual Stavros Niarchos Foundation Lecture at the Peterson Institute in Washington.
Currency wars pose “a clear and present danger” to the world economy on a scale not seen since the breakup of the trading system that led to the Great Depression in the 1930s, C. Fred Bergsten warned in the annual Stavros Niarchos Foundation Lecture at the Peterson Institute on May 16. Dr. Bergsten, senior fellow and director emeritus of the Institute, said that manipulation to weaken currencies averages $1 trillion per year and transfers $700-900 billion of production annually from deficit to surplus countries. This costs 1-5 million US jobs – the same order of magnitude as has been created by the fiscal stimulus of 2009 and the quantitative easing (QE) policies of the Federal Reserve. The manipulation has had similar effects in Europe, significantly exacerbating the euro crisis.
Dr. Bergsten called the absence of effective international rules to address this problem the largest single gap in today’s financial architecture. He proposed a series of reforms to terminate such practices, including strengthening the tools of the international economic institutions and taking unilateral US actions if such steps do not succeed.
“The bottom line is that we have witnessed extensive competitive depreciation for a number of years,” Dr. Bergsten said. “Much more seems quite possible in the near future. The numbers are very large. The practice is widespread. The economic damage that has already resulted is immense and could become much worse. This is similar to what happened in the 1930s with such disastrous consequences.”
Dr. Bergsten, who stepped down on January 1 as the first director of the Peterson Institute, which he founded in 1981, was asked to deliver the prestigious Stavros Niarchos Foundation Lecture to look back on his nearly 50 years of policy making, research and advice to successive US and other leaders around the world. He said that in these decades the US had become subject to a “scissors” movement squeezed by two trends. On the one hand, the US is increasingly dependent on the world economy. On the other, it is increasingly unable to influence the rules of the world economy. This phenomenon has produced American skepticism and even hostility toward an open economic system, which is very dangerous for its survival.
Each May, the Stavros Niarchos Foundation Lecture enables the Institute to present a leading figure in global economic policy-making and thinking for a major address on a topic of central concern to the US and international policy communities. "Since 2001, the Stavros Niarchos Foundation has generously supported PIIE's signature annual event," said Adam S. Posen, president of the Peterson Institute. "The Foundation has been an incredibly strong supporter of the Institute's mission, and we are excited to continue bringing the world's economic leaders to address our audiences." The inaugural Stavros Niarchos Foundation Lecture was delivered by Alan Greenspan in 2001. Subsequent presenters have included Mario Monti, Nandan M. Nilekani, Lawrence H. Summers, Heizo Takenaka, Jean-Claude Trichet, Long Yongtu, and Ernesto Zedillo.
For more information about the lecture, click here.