Loading central banks with more tasks and pressing them to pursue more aggressive monetary policies could risk a round of competitive devaluations, European Central Bank policymaker Jens Weidmann said on Monday, citing pressure on the Bank of Japan.
Weidmann is the latest in a string of policymakers worldwide to warn of the threat of a "currency war" as central banks pump out cash to support their economies, reducing their value in the process.
He said the pressure that Japan's new government has put on the BOJ to deliver bolder monetary easing endangered the central bank's independence, as did the actions of Hungary's government.
"Already alarming violations can be observed, for example in Hungary or Japan, where the new government is interfering massively in the business of the central bank with pressure for a more aggressive monetary policy and threatening an end to central bank autonomy."
"A consequence, whether intentional or unintentional, could moreover be an increased politicization of exchange rates," the Bundesbank chief, who also sits on the ECB's Governing Council, said in a speech at a Deutsche Boerse New Year's event.
"So far the international currency system has come through the crisis without a devaluation competition, and I hope very much that remains the case," Weidmann added in a section of his speech entitled " in danger".
Last Wednesday, Russian central banker Alexei Ulyukayev said Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilizing devaluations.
Russia holds the G20 presidency this year, a forum at which currencies and their relative values is likely to surface.
Plans for the ECB to begin supervising banks were consistent with a trend outside the euro zone for central banks to be given more tasks that lie beyond their core mandate, Weidmann said.
"But the overburdening of central banks with tasks and expectations is definitely not the right way to overcome the crisis in a sustainable way," he added. "Central banks protect their independence best by interpreting their task narrowly."
"The key to handling the crisis does not lie with the central banks."
Weidmann's comments echo remarks by James Bullard, a senior Federal Reserve official, who said earlier this month the world's top central banks had sacrificed some of their independence to contain the financial crisis, describing the ECB's bond program as a "fiscalization" of monetary policy.
Weidmann struck a bleak note on the prospects of both the euro zone and the United States overcoming their debt problems, saying there was no quick, simple way to fix them.
"The adjustment process to bring state finances and economic structures back into order is not a matter of months or a few years," he said.
But he was more upbeat on the economic prospects for the German economy, saying that although it would probably be "powerless" in the first quarter it should pick up noticeably later in 2013.
"The German economy remains in good shape," Weidmann added.
He also appeared to warm to an idea put forward by an EU advisory group last October for a legal separation of banks' commercial and investment banking operations in an attempt to shield taxpayers from having to fund further bailouts and to protect savers from any more banking collapses.
"The creation of legally, organizationally and commercially self-contained trading units can help to protect deposit banks without sacrificing the advantages of Germany's universal banks," Weidmann said, in comments that marked a shift from the Bundesbank's earlier position that did not give much credit to the proposal.