A top association representing financial institutions and banks around the globe is calling on the world's leading economies to step up efforts to work together and resolve currency issues to help re-balance the global economy. The call comes as some have voiced concerns about a possible "currency war."
As world economies struggle to recover from the global financial crisis, concern has been growing about what appears to be a widening practice of countries intervening in their markets to prevent the appreciation of the value of their currency.
The United States and the EU have stepped pressure on China to let the value of its currency rise, and in recent weeks, Japan, South Korea, Brazil and Switzerland have intervened in their markets to keep the value of their currencies from appreciating.
Brazil's finance minister has warned that the world is already locked in an "international currency war."
Phil Suttle, chief economist at the Institute of International Finance says that while that statement may be overblown, the risk is there.
"Well that phrase is probably a little alarmist," said Suttle. "I think it was used initially in recent weeks by Brazil because it was most concerned about what it was seeing, but I think these things can slip out control quite quickly, put it that way. Some of the unilateral actions that we've seen being taken over the last few weeks I think are a little concerning."
The Institute of International Finance represents more than 400 of the world's leading banks and financial institutions. Suttle says that with tensions growing, world financial leaders should use upcoming meetings on the global economy to make a case for more cooperation.
"One of the things that we think is going wrong at the moment is that a year or so ago there was a tremendous amount of policy cooperation and coordination," he said. "But now that degree of policy cooperation and coordination has broken down and you see some of that coming through clearly in the currency markets."
The International Monetary Fund and World Bank holds meetings this week in Washington D.C. and next month, the G-20 leaders summit will be held in South Korea.
Suttle says his organization wants world economies to try to reach an understanding over currencies and how they can best work together to revive the global economy.
"It is almost impossible to get everyone to agree at all times, but in the past, at various key points in the past, we've been able to get major players together to agree to not necessarily produce a given outcome in the currency markets, but in particular to coordinate their policies and strategies so that they pull together," said Suttle.
Countries take measures to keep their currencies weaker to help make their exports more competitive.
China has long been accused of keeping its currency undervalued and making it difficult for U.S. companies and other foreign exporters to compete.
Gordon Chang a columnist at Forbes magazine says he fears that as China continues to fix the value of its currency and the practice spreads to other countries, we could eventually see the end of free-floating exchange rates.
"The next great trade war could be over currencies with nations adopting beggar thy neighbor policies [benefiting one country at the expense of the other] this could be like what we saw with tariffs in the 1930s and the United States is doing very little to defend the system of free floating currency rates," said Chang.
Last week, the U.S. Congress passed a bill aimed at punishing China for fixing its exchange rate. On Tuesday, EU leaders pressed China to let the value of its currency rise.
In addition to legislation, U.S. lawmakers and economists are urging the Treasury Department to declare China a currency manipulator when it releases a report October 15 arguing that would create more leverage.
However, Suttle says every country has a role to play and that the issue will not be resolved if countries continue to blame others and assume that they are the not the ones who need to change.