May 16, 2013
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 at 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 have been created by the fiscal stimulus of 2009 or the quantitative easing (QE) policies of the Federal Reserve. The manipulation has had substantial 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 global economic 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.
About the Stavros Niarchos Foundation
The Stavros Niarchos Foundation is one of the world's leading international philanthropic organizations, making grants in the areas of arts and culture, education, health and medicine, and social welfare. The Foundation funds organizations and projects that exhibit strong leadership and sound management and are expected to achieve a broad, lasting, and positive social impact. It has been generous with resources for many projects at the Peterson Institute over many years, and it has funded the annual Stavros Niarchos Foundation Lecture each May since 2001.
About the Peterson Institute
The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, open, and intellectually honest study and discussion of international economic policy. Its purpose is to identify and analyze important issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is widely recognized as nonpartisan.