Official warns of currency race in Davos



The deputy governor of China's central bank has warned of a possible currency war after Japan has joined the club to adopt unconventional steps to escape recession.

The measures, according to the senior Chinese official, will have a major impact on the world, especially emerging economies.

The winter cold cannot prevent Davos from feeling the financial heat.

The World Economic Forum has drawn economists, officials and CEOs from near and far.

Despite wide disagreement, all agree, the world is awash in easy money.

Central banks in some developed countries have pumped trillions of dollars into the system to try to revive sluggish economies, combat deflation and prop up weak banks.

The Fed, the Bank of England, and to a lesser extent, the European Central Bank. The latest is the Bank of Japan, which on Tuesday announced its most radical effort yet to end years of stagnation.

The policy, however, has touched nerve with many here in Davos, including the deputy governor of China's central bank.

SOUNDBITE (CHINESE) YI GANG, China central bank deputy governor:

"I think we should keep a close eye on the consequences of easy money policies. The measures will lead to a considerable rise in capital flows, which are often unpredictable. Besides, easy money policies might spark a race for weakness among currencies. All these will have an impact on the world economy, especially emerging markets. That's why we must stand on guard."

Many believe the measures by major central banks in developed countries have strengthened currencies of emerging markets, and as a result, hurt their exports.

As to the exchange rate of the Chinese currency, the deputy governor says, the yuan is moving close to a balance against foreign exchanges, citing a continuous slowdown in the country's foreign exchange reserves.