World Risks Depression if Currency Tensions Escalate: Mobius
Rising tensions amid an escalating global currency war has sparked talk of capital controls, but such a move would be dire for markets, warned Mark Mobius, executive chairman of Templeton Emerging Markets Group on CNBC Friday.
"We could really move into a depression globally," Mobius said, should currency controls, trade wars and trade restrictions be implemented.
Fears of global currency and trade wars are now top of the agenda at IMF and World Bank meetings this weekend, Reuters reported. The Group of Seven meeting on Friday is also expected to focus on how to defuse currency tensions.
But with the U.S. Federal Reserve expected to introduce further quantitative easing measures, the flood of easy money is set to weaken the dollar and trigger an appreciation in other currencies.
"I think the linchpin of this is China and the U.S. - if they can come to some kind of agreement, then I think we could see that softening up and tempered," Mobius noted.
This week, IMF head Dominique Strauss-Kahn said China needed to accelerate the appreciation of the yuan in order to avoid creating the conditions for a new crisis.
"If you want to be at the center of the system ... it goes with having more responsibility in the system," he said.
In June, China pledged to let its currency respond to market forces more freely, but the yuan has only risen about 2 percent since.
Currency appreciation is not necessarily a bad thing for importers of raw materials, Mobius highlighted.
"I think the Chinese are beginning to realize that," he continued. Mobius said he expects a gradual appreciation of the yuan as it would "genuinely have a beneficial impact on China".
"China is becoming a more and more domestically-oriented economy. They're going to de-emphasize exports... So a strong currency and of course moving towards a major world trading currency is definitely in the cards," he said.
For investors wanting to get into such markets, Mobius said buying their American Depositary Receipts or Global Depositary Receipts were safer bets.
"You can be trading outside the market even though there are capital controls," he said. "This was the case with Argentina for example in the recent past and in other countries. That's one protection."