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Q&A: Currency The Latest Threat To Global Economy

A rise in the value of the euro will do little to help the eurozone's businesses â¿¿ and will hardly help getting it growing again. Figures Thursday showed that the economic output of the region shrank at an annualized rate of around 2.5 percent in the last quarter of 2012.

What's been the reaction from other major economies?

â¿¿ Politicians have voiced concerns about the euro's rise versus other major currencies â¿¿ most notably French President Francois Hollande, who indicated he was open to calls for a more managed exchange rate. European Central Bank President Mario Draghi said last week that the bank will monitor the economic impact of the euro's rising value. Several analysts took that to mean the ECB could cut interest rates to bolster growth, which in theory could weaken the euro â¿¿ an indirect tit-for-tat response to the yen's fall, some say.

Earlier this week, the volatility in the currency markets prompted the Group of Seven leading industrial nations, which includes the U.S, Germany as well as Japan, to warn that volatile movements in exchange rates could adversely hit the global economy and to reaffirm their commitment to market-driven exchange rates.

Might other countries try to manipulate their currencies in response to Japan?

â¿¿ There is no sign of that â¿¿ so far. But fixing the value of a currency is not without precedent.

In Sept. 2011, Switzerland took action to arrest the rise of its currency, the Swiss franc. The rise was triggered by the debt crisis in the eurozone â¿¿ investors were looking for somewhere safe to park their cash and the Swiss franc has traditionally fulfilled that role. The Swiss intervention was viewed as an attempt to protect the country's exporters.

For years, U.S. politicians have accused China of keeping its currency, the remnibi, artificially weak in order to industrialize fast. And many countries believe the U.S. long ago abandoned the "strong dollar" policy at the core of the Clinton administration's economic policy in a dash for growth.

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