IMF calls for more market oversight

DOMINIQUE STRAUSS-KAHN, the managing director of the IMF, yesterday called for “huge enhancements in the global supervision” of financial markets to avoid future crises.

Mr Strauss-Kahn was asked at a press conference about the widespread impression that bankers “are up to their old rapacious ways again”.

“We believe that it is not the right way to go back to business as usual, and there is a risk of going back to business as usual,” Mr Strauss-Kahn warned.

Regulation and capital requirements were all well and good. “But very little has been done . . . we need huge enhancements in the global supervision.”

The development of different regulatory systems around the world created a risk of inconsistency and “loopholes” which sowed “the seeds of the next crisis”.

The IMF is “advocating that we need absolutely to work more on supervision,” Mr Strauss-Khan said. Likewise, more work was needed on crisis resolution, on the model of the fund established by the European Union.

Mr Strauss-Kahn was asked to respond to a recent call by the US treasury secretary Timothy Geithner for the IMF to play a more aggressive role in resolving the dispute over exchange rates between the United States and China.

In Brussels on Wednesday, the Chinese premier Wen Jiabao said forcing China to appreciate its currency would lead to a “disaster for the world” because “factories will shut down and society will be in turmoil”.

The IMF said the Chinese economy will grow 10.5 per cent this year, the highest rate of any major economy.

“The IMF is the right place to try to make progress on this question,” Mr Strauss-Kahn said. “During the last three years we have been the only institution repeatedly to say, concerning China . . . that we believe that the renminbi was substantially undervalued and something has to be done to fix this problem.”

Yet the only means of persuasion that Mr Strauss-Kahn suggested was a greater role within the IMF in exchange for “responsible” behaviour.

“If you want to have more say, more weight in the IMF, then you need to take more responsibility in the stability of the system,” he said.

“You can be at the centre of the system, or you can be at the border of the system, but if you want to be at the centre of the system . . . it goes with having more responsibility on . . . the consequences of what you do in the global economy.”

The head of the IMF said his use of the term “currency war” to describe tension between the US and China may have been “a bit too military” though “it is true to say that many do consider their currency as a weapon, and that is certainly not for the good of the global economy”.

Mr Strauss-Kahn warned that the spirit of international co-operation created by the global financial crisis is waning.

That solidarity had been “very strong” at G8 and G20 summits. Now the momentum was decreasing, “and that is a real threat, because everybody has to keep in mind this mantra that there is no domestic solution to a global crisis”.