Mervyn King, the Governor of the Bank of England, last night issued a thinly veiled attack on the leading protagonists in the global battle over currency valuations, warning that the row could lead to "every country [suffering] ruinous consequences".
The attack follows the escalation in recent weeks of an international row about the efforts of many countries,including China, Japan and Brazil, to keep the value of their currenciesartificially low to sustain their export industries.
Other nations, particularly the US, have complained that such tactics threaten to perpetuate the global economic imbalances that triggered the financial crisis.
Mr King warned yesterday that the strong spirit of economic co-operation seen at the height of the crisis had "ebbed away", as countries had sought to further their own interests.
"The need to act in the collectiveinterest has yet to be recognised and, unless it is, it will be only a matter of time before one or more countriesresort to trade protectionism as the only domestic instrument to support a necessary rebalancing," the Governor said. "That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world."
Mr King's intervention in the currencies row came just hours after the US Treasury Secretary, Timothy Geithner, also waded into the argument. "No country around the world can devalue its way to prosperity to be competitive," Mr Geithner said. "It is not a viable, feasible strategy."
Mr King and Mr Geithner are due in South Korea this weekend for the latest meeting of finance ministers from the G20 nations. The summit is set to be dominated by the disagreementbetween the US and China, and others, over currency valuations.