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IMF chief warns against currency war

G7 Finance Ministers meeting at the annual IMF gathering this Friday where currency manipulation wil

Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), has cautioned governments against using exchange rates as a "policy weapon."

He warned that such practices could lead to a currency war among nations.

"There is clearly the idea beginning to circulate that currencies can be used as a policy weapon...Translated into action, such an idea would represent a very serious risk to the global recovery," Strauss-Kahn told the Financial Times.

He added, "We have seen reports that some emerging countries whose economies face big capital inflows are saying that may be it is time to use their currencies to try to gain an advantage, particularly on the trade side. I don't think that is a good solution."

The director, while conceding such measures were useful as stopgap arrangements in particular situations, said that as an economic approach it would have a "negative and very damaging longer-run impact."

In the recent past, several countries including Japan, South Korea, Switzerland and Taiwan have taken measures to devalue their currencies to boost their exports.

Finance ministers from the G7 group of nations will be meeting at the annual IMF gathering this Friday, where currency manipulation will likely be a prime subject of debate.