The United Nations Conference on Trade and Development (UNCTAD) said multilateral coordination of exchange rate policies, similar to the way the World Trade Organisation (WTO) regulates global trade, was needed to deal with the crisis.
Rather than "pro-cyclical" belt-tightening policies urged by the International Monetary Fund (IMF) on countries affected by the crisis, it was counter-cyclical policies to boost the economy in the face of the downturn that were needed, it said in a policy brief.
"The world seems not to have learned the lessons from previous financial crises: that traditional adjustment packages can be counterproductive, and that better global exchange rate arrangements will be critical if we are to achieve and maintain monetary and financial stability," UNCTAD said.
The comments in the brief, entitled "Will we never learn?", were directed more at developing countries seeking to defend exchange rates, as the United States and other rich countries were cutting interest rates and pumping money into the economy to stimulate demand and ward off recession and deflation.
UNCTAD said the main idea behind the creation of the IMF had been to avoid the destructive competitive devaluations that bedevilled the world economy in the 1930s.
A well-designed global system would balance the advantages of appreciation in one country with disadvantages in another, regulating currency rate changes as the WTO regulates tariffs.
REAL EXCHANGE RATES
A regime of this kind would require countries to specify the reasons for changes in their "real" -- inflation-adjusted or labour-cost adjusted -- exchange rates, and ensure that real rates remained more or less constant, it said.
UNCTAD said developing countries best placed to withstand the crisis had a high share of manufacturing in total trade, raised the share of domestic demand in growth and cut dependence on foreign capital by building up current account surpluses.
Those most exposed to the crisis combined high current account deficits with a build-up of private-sector foreign liabilities and were victims of the "carry trade" -- borrowing in low-yield currencies and investing in high-yield ones.
This led to overvaluation and loss of competitiveness, UNCTAD said, pointing to Brazil, Hungary, Iceland, Romania and Turkey among those that suffered a sharp depreciation in nominal and real exchange rates.
Although this made companies more competitive in the long run, it could hurt households and banks with damaging consequences for growth and employment -- aggravated as central banks sought to defend exchange rates by tightening policy in one of the most severe recessions of the past century, it said.
Traditional aid packages combined with belt-tightening were counter-productive, UNCTAD said. Countries that were exposed to carry trade speculation needed a real devaluation to restore competitiveness, while the combination of rising interest rates and falling government spending could reinvite speculation.