Emerging FX need 20-25 pct revaluation - economist

Major developing nations should accept a 20-25 percent appreciation of their currencies to better stabilise the global economy and the G20 group of top economic powers should work to negotiate that, an influential U.S. economist said on Wednesday.

In London for meetings with British economic and financial policymakers, Robert Johnson, executive director of the Soros-funded Institute for New Economic Thinking (INET), told Reuters that another round of quantitative easing by the U.S. Federal Reserve was no remedy for the ailing U.S. economy.

Johnson, a former managing director at billionaire George Soros's fund management firm and former chief economist of the U.S. Senate Banking Committee, said more Fed QE may simply up the ante in competitive devaluations and blow bubbles in faster-growing but dollar-pegging economies.

"There is competitive devaluation going on," he told Reuters. "What is called for here is a realignment of emerging countries' exchange rates vis-a-vis the developed countries in the first order -- maybe 20-25 percent appreciation over the next year or two."

G20 finance chiefs meet in South Korea on Oct 22-23 against a backdrop of the Bank of Japan selling billions of yen to cap its currency and rising speculation the U.S. Fed will soon print more dollars via asset purchases to boost flagging U.S. demand.

The fear that this flood of new cash will merely flow to higher-yielding emerging markets and over-inflate currency and asset prices there was this week described by Brazil's Finance Minister Guido Mantega as a global currency war.

Johnson said the big world players in an "oligopoly-style" standoff -- the United States as waning consumer of last resort; the giant export-driven economies of China, Japan, Germany; and a bloc of other exporting emerging nations -- should come together to resolve the problem under the auspices of the G20.

"That (currency appreciation) will be very painful for these emerging countries, and we must be mindful their standard of living is lower than developed countries, but retaining the vibrance and growth of their development plans has a cost."

"On the other hand if their currencies are 20-30 percent higher, they can buy all sorts of things more cheaply and that does improve their living standards over time."

Johnson said the biggest danger of another round of QE by the Federal Reserve is that the United States simply re-exports deflation.

"The U.S. would then be entering that beggar-thy-neighbour game."

REAL TROUBLE

Johnson said the U.S. government was caught in a bind, with room for further fiscal stimulus now constrained and the effectiveness of further Fed action limited.

"The administration is in real trouble right now," he said. "We're not back down in the ditch, but with 10 percent unemployment and 1-1.5 percent growth, there are a lot of people who are feeling the pain of persistent idleness and that is leading to a great deal of political dissatisfaction."

On Fed plans for more monetary easing, he said the big question was not that it would do harm but whether it would be effective.

"Pumping more liquidity into the system may not be the remedy," said Johnson. "What I think we probably need more of is something like an infrastructure programme that builds roads, bridges and schools -- real construction and development that spurs a greater use of cash rather than just pumping more cash into a system that's in a slump."