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Quest Means Business

Brazil's Foreign Minister Weighs in on Currency War

Aired October 14, 2010 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Brazil steps the ante in the currency war. The country's finance minister tells this program Europe and the U.S. must do more.

I draw my own battle lines on the currency dispute. Ali Velshi and I go head-to-head, "Q&A".

And a dispute of a different kind, just as nasty, Air France tells Gulf carriers they're a threat. A chief executive of Dubai hits back.

I'm Richard Quest, an hour together, and I mean business.

Good evening.

The dollar is sinking to new depths against the world currency today. A sign of growing imbalance and global divide between the nations that are choking off the money supply and those that are opening the monetary flood gates ever wider. The latest plunge was triggered by policymakers in Singapore, who are allowing the Singapore dollar to rise to a record against its U.S. counterpart.

It is an attempt to tighten the money supply to ward off inflation. You can see the result clearly enough. The U.S. dollar fell to a new low against the yen, and that shows the trend that the dollar over the yen, a 13 to 14 percent devaluation over the last six months. Nearly 15 percent has gone off the value of the U.S. currency, from May right down to the period now. The spike, of course, in September, that is when Japan intervened to weaken its currency.

Now, the fascinating part about that, it worked, and then it didn't. The effects quickly wore off.

The dollar is also at an eight-month low against the euro, it is at near parity with the Aussie and the Canadian dollar, also known as known as the "loonie". Now the real reason for the dollar's weakness, of course at home, deep inside the U.S. Fed, where policymakers are getting ready to print more dollars, QE, quantitative easing. Some say it is tantamount to an act of war, a currency war. A leading Chinese economist has told a state newspaper that quantitative easing is a deliberate strategy to devalue the dollar, boost U.S. exports, the classic quick fix, economic beggar-thy-neighbor policy.

But if you look at currency wars over the years, and devaluations, you have the unilateral devaluation. Harold Wilson, in 1967, the pound in your pocket, as he used to call it, he devalued it and then of course the IMF had to come in and help rescue the country later in the `70s. Economically it did perform, but the costs were very serious.

Then you have a managed devaluation. The Plaza Accords in '85, led to the Louvre Accord in '87, when G6 countries, or G5 countries, as it was then, agreed to devalue-or let the dollar devalue by up to 30 percent.

Finally, what you now have today. Competitive devaluations: China, the United States, Brazile, the United States, Europe, the United States, many other countries. The pound versus the euro, everybody trying to competitively devalue. It is also as a race to the bottom.

Brazil's finance minister was the first person who actually said, and warned, currency war. Guido Mantega says it is not too late to reach a peaceful solution. He was talking to our own Maggie Lake.

(BEGIN VIDEOTAPE)

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: For the U.S., for Europe, they have high debt, they feel their hands are tied. They can't stimulate anymore, and that is why people are turning to currency. So, again, how do we prevent this from going further? Who needs to provide the leadership?

GUIDO MANTEGA, FINANCE MINISTER, BRAZIL: I don't think that the United States and Europeans have their hands tied. I think that they can do something more in fiscal policy. Not everybody, but the more strong economies like United States, like Germany, and they must do it because I think that it will be worse if we have a protectionism. Because if we don't have an agreement we can have some-each one will-to make interest. To beggar-thy-neighbor is not a good policy.

LAKE: Are you hopeful there can be an accord at G20 in November?

MANTEGA: I think that we begin an accord. I know that we have resistance. But I think that we can achieve a beginning of a discussion that can achieve something like the Plaza Accord that we had in 1985, in the United States.

(END VIDEOTAPE)

QUEST: There you are, the Plaza, and of course the Louvre. And you'll hear more from the Brazilian finance minister later in the program. Along well from the Chinese perspective, Victor Chu will be on the show within the hour.

Hernando De Soto is the man that presidents turn to when they need advice on the economy. President of the Institute for Liberty and Democracy, he is considered by "The Economist" magazine to be one of the most important think tanks in the world. And he's written two books, "The Other Part" and "The Mystery of Capital", both best sellers. If you want to talk currencies and want to know about beggar-they-neighbor policies, particularly between developed and developing economies, Hernando De Soto is the man to talk about politics and currencies.

(BEGIN VIDEOTAPE)

HERNANDO DE SOTO, PRES., INSTITUTE FOR LIBERTY & DEMOCRACY: Yes, because it is essentially about countries finding out how they can start exporting more, so as to produce more, so as to be able to generate more employment, because they don't see their way out of the crisis.

QUEST: But countries know that a beggar-thy-neighbor policy, of competitive devaluations, is a high road to no where.

DE SOTO: Yes, but politicians get elected internally, so what their producers, and what their consumers, and what their employees are doing will always be more important.

QUEST: If you are right, then it doesn't bode well, particularly for something like, for example, the dollar, which is going to come under increasing pressure.

DE SOTO: But of course. But the underlying problem is the world crisis. It is not the currency crisis. The currency crisis is one of the many symptoms of an unresolved recession that is still continues.

QUEST: Which is based around what?

DE SOTO: Which is based around the fact that for now, there is a growing awareness that over the last two, three years, nobody really knows who owns what and where, and what the facts are. In other words, you've got most of your financial instruments, called derivatives, there is about $680 trillion of them, you don't necessarily know where they are. You don't know who is solvent, who is insolvent.

You don't know what country has been using double standard bookkeeping, so as to know whether they are in hock, or they are not in hock. You don't have market-to-market procedures anymore. At least they have been uplifted so that you don't really know the prices of things. Generally speaking, the whole wealth of the capitalist system has been based on the fact that you are able to know situations in distant places. You don't anymore.

QUEST: I agree with you that there is an element-there is a great lack of transparency in certain situations, particularly in terms of the highly complex split and divide derivatives. But that shouldn't necessarily preclude us, or take us into another recession, or make matters worse.

DE SOTO: Well, the thing is you come from a developed country and I come from a developing country. In the developing country you don't know who owns what and who is in debt to who. And when you are poor you know that it is a problem of epistemology. That it is to say, of knowledge. So it is not a problem of transparency. It is that you don't know. It is much worse. Transparency indicates that you are not being totally honest. Lack of knowledge means that you are ignorant of who is where.

QUEST: Let's assume for the purposes that you are right, in which case, what do you suggest needs to be done. Because you can't suddenly start unwinding all of these extremely complicated transactions, just so that you can see the transparency, or you can see who owns it.

DE SOTO: Well, how are you going to know what kind of investment you are going to make if you don't know if the person owns it or they're in debt. Or whether their books are on line, or were addresses are correct, or were they took out a repo loan, and shoved their debt forwards.

QUEST: Surely-well, surely that mitigates for better rules moving forward. But you can't necessarily unwind all the stuff that is behind you.

DE SOTO: Oh, you will have to. You had to do it in the 19th century. In the 19th century you had recessions that lasted 10, 15 years, because of the feudal system-

(CROSS TALK)

QUEST: But you want to put the clock back?

DE SOTO: No, I don't want to put the clock back. I want to go back to what made trust possible in a capitalist economy. You see, when you have a central economy, like, there was in a Communist economy, you didn't need to know where everything was because knowledge was centralized. The first characteristic of a capitalist economy is the division of labor. Everything is decentralized. Now the issue is how did you get all that knowledge together? And the reply to that is everything was recorded and now you have most of the Western world's wealth unrecorded. So how are you ever going to get out of it without getting into the substance?

(END VIDEOTAPE)

QUEST: Fascinating debate on the question of what's happening next. And if you want to discuss more, and read more on currency wars, we're going to talk a lot more about it. And article called, "The Truth About Currency Wars", where the author puts forward a riveting argument why a lower Chinese yuan will not help the U.S. issues of competitiveness.

If you want to read it yourself, then just go online. Go to my Facebook page, Facebook.com/CNNQuest. I've posted the article there. You'll be able to learn a lot more about the program, the people who make it, and our debate. The community grows ever larger. Facebook.com/CNNQuest.

In just a moment we are in Hungary where workers are trying to clean up the aftermath of the toxic sludge. And exclusively we're going to hear from the chief executive of the aluminum, or aluminum plant. He was arrested. He's been let free. What's been going on?

(COMMERCIAL BREAK)

QUEST: The pictures tell their own story, don't they? The toxic sludge in Hungary, the size and scale made very clear by these pictures. Now, closely watched by government eyes, the aluminum plant at the heart of this devastation is set to reopen by the end of the week. The toxic red sludge burst from the plant's waste reservoir. It swept through the villages. Nine people have been left dead, some contamination, although low-level, contamination in the River Danube.

The head of the aluminum plant was arrested and questioned. He's since been released. CNN's Diana Magnay joins me now from Hungary, from Budapest.

Good evening, Diana. First of all, the current situation and then, of course, your interview.

DIANA MAGNAY, CNN INT'L. CORRESPONDENT: First of all, the current situation is such that the clean up continues at full pace. You know we drove through the affected villages today. And it looks a lot better than it did. But there is still a long, long way to go. EU toxins experts are here, they're due to hand in their assessment of the situation of the long- term environmental damages, to the Hungarian government this coming Friday, at which point they'll leave. And it is only really at that point that the government will know how long this clean up will continue, what the long- term impact will be, and what in fact the cost is.

And, Richard, I just want to bring one incredible fact to your attention. There was almost as much red mud spilt in this, in this spill, in this leak, in a matter of hours as was spilt over months in the BP oil spill. And we all know the sort of hatred that was directed towards BP's chief executive at that time. You could imagine the situation that his equivalent here at the MAL plant has been going through over the last couple of weeks.

And as you say, we had an exclusive interview with him a few hours ago and here is what he said.

(BEGIN VIDEOTAPE)

MAGNAY (voice over): It's 10 days since a reservoir belonging to aluminum firm, MAL gave way, sending a torrent of toxic red mud across 1,000 hectares of Hungarian countryside. Nine people died, homes will be bulldozed, it is unclear long-term what impact this foul red sludge will have on health or the environment.

No one wants to carry the can for an industrial accident like this. Zoltan Bakonyi may have to; 38-years old, he's the son of one of the MAL's three owners and managing director of the firm.

"Please understand," he says. "I've been there just two years. This is a story which goes back 70 years. It was decided where this reservoir should be built 25 years ago, or more. I was just a child in elementary school then.

MAGNAY (Speak Hungarian on camera, translated voice over): But now you're the boss.

"Yes," he says. "For two years now."

MAGNAY (Speak Hungarian on camera, translated voice over): So you are responsible?

ZOLTAN BAKONYI, CEO, MAL ALUMINUM (through translator) "I don't know if I am responsible. It said I should be responsible, although I don't feel it."

MAGNAY: Bakonyi denies reports that this reservoir was already leaking weeks before the actual spill. He says MAL always satisfied government safety inspections. Still, he says, the company will pay for damages caused by the spill.

"We'll help as much as we can," he says. "It doesn't matter who is responsible."

But for villagers salvaging remnants from their flood sludge-filled homes, that vague promise may not be enough.

"The aluminum plant owners must pay for new houses and new lives," these men say.

I ask Bakonyi, whose father is one of the riches men in Hungary, how much financial help he's willing to commit.

BAKONYI (through translator): I'm sure that the firm, where it can, when it is up and running again, will carry the responsibility for as much as we possibly can."

MAL is currently under government control. And although Bakonyi is still managing director, he may still face trial on charges of criminal negligence.

"I want to extend my heartfelt sympathies to all those affected," he tells me. "It's hard to describe even in my own mother tongue how difficult this is to understand."

A tragedy difficult for many to understand, a red stain across the lives and livelihoods of thousands, whose only crime was to live downstream from an aluminum plant.

(END VIDEOTAPE)

MAGNAY: And you know, Richard, in a way this is typical. This company is typical of an Eastern European industrial story, where a Communist era plant was privatized for very little money in the `90s but its infrastructure was never brought up to date. This time, however, with catastrophic consequences, Richard.

QUEST: And Diana how much-just briefly and finally-that reservoir wall, is that now secure? The second reservoir that you were telling us about, or the second wall?

MAGNAY: There is still a crack in that reservoir wall, which we heard today is growing. But there are preventions in place, emergency dams in place, that authorities say are sufficient to withstand any toxic sludge that might leak out of that reservoir without impacting the community around it. So they say that although they can't stop the reservoir leaking the surroundings are as safe as they can be, Richard.

QUEST: Diana Magnay with that exclusive interview from the managing director in Hungary tonight. Diana, many thanks indeed.

We need to talk about the European markets now, where it was a mixed day of trade. Stocks in London and Paris closed lower. They were dragged down by the banks. And worries that they may need to raise more capital. That offset a gain in mining stocks after dollar weakness pushed metals higher across the board. Germany managed to build on yesterday's gains. Stocks were lifted by better than expected earnings from the luxury menswear group, Hugo Boss.

To the New York market now, where stocks are falling. The banking stocks taking the biggest hit, from worries about foreclosure problems. You'll know about that. JP Morgan Chase, Citigroup, Bank of America, all lower. Weaker-than-expected jobs data also hurting the broader market; 11,000 is looking a little bit dodgy at the moment. But all things considered, we are moving into earnings season. So perhaps this is to be expected.

Now, in a moment, it is the real currency clash. Ali Velshi and myself, we are going to be going head-to-head. The gold standard of "Q&A", and the issue today is that of currencies, currency wars, currency battles. Head-to-head, in a moment.

(DESK BELL CHIMES)

(COMMERCIAL BREAK)

QUEST: Welcome back to CNN NEWSROOM and to QUEST MEANS BUSINESS, across the United States and around the world.

Hello, Ali.

ALI VELSHI, CNN FINANCIAL CORRESPONDENT: Hello, Richard. Each Thursday Richard and I will join you at this time, around the world to talk business, travel, and innovation. Nothing is off limits. We take your questions and today we're tackling a question on currency.

QUEST: It is a possible war that is brewing over the real value of money. Ali, last time I went first, so now The Voice give us 60 seconds on the clock.

VELSHI: All right. Let's start.

China maintains its currency, the yuan, at a level that some say is unnaturally low. Now that makes Chinese goods cheaper than some say they otherwise would be. America says a low yuan hurts U.S. manufacturers and costs American jobs. Letting the yuan rise could create new demand for U.S. made goods and help rebuild the decimated U.S. manufacturing sector.

Well, the Chinese response? You've got to be kidding America. The loss of American manufacturing and exports is self inflicted. China says the U.S. can't simply manufacture as efficiently, meaning as cheaply as China can, and that blaming the yuan is a red herring.

China says that Americans should save more, spend less, get out of debt, and for good measure, China accuses the U.S. of the same offense, keeping the U.S. dollar low. Now keeping your currency low encourages exports and boosts your country's manufacturers, creating jobs and prosperity at home.

How does a country actually keep its currency low? If you are China, you buy up U.S. dollars, keeping them strong by reducing the available supply? If you are the U.S. you basically print more money-

(BUZZER SOUNDS)

VELSHI: You increase supply and you decrease the value of your currency, Richard.

QUEST: Ah, ah! That is a very good explanation. Give me 60 seconds and I'll tell you what really it is all about when you talk of currency wars. Whether it is the euro, or the dollar, or the pound sterling-or even the Hungarian forint, currencies do battle against each other, all trying to try and force the other one down.

Because if you look the Brazilian royal is up 14 percent against the dollar. The Japanese yen, up 15 percent, the euro, 13 percent. It's known as a classic beggar-thy-neighbor policy. The real currency war happened in the 1930s around the Great Depression; and then after the Second World War, managed currencies, the Plaza Accord, the Louvre Accord.

And now we're in this difficult situation when the world has to come together once again, but can they do it? So far the IMF has failed. The G20 hasn't got much further, whether or not they can avoid the question of a big currency war depends on your job and on mine. Because in a currency war everybody looses out.

(BUZZER SOUNDS)

VELSHI: I must say, I think my bills are bigger than yours.

QUEST: Boasting again as always, Ali. I think it is what you do with it, not how big it is.

VELSHI: Excellent. And on that let's find out how much we both know about this stuff. It is time for the quiz. The battle between Richard and me. Let's introduce The Voice.

Hello, Voice.

THE VOICE: Hello, gentlemen.

Now, I know you are both G20 experts. So, gee, I sure hope you get this first question right.

Which of these countries is not part of the G20, which meets next month in South Korea? A., Argentina; B., Turkey; C., South Africa; D., Spain.

(DESK BELL CHIMES)

THE VOICE: Richard.

QUEST: Spain.

THE VOICE: With a decisive ring, and a decisive answer, you are exactly right, Richard.

(BELL RINGS)

THE VOICE: Spain is the most populous country not included in the G20. But South Korea has invited Spain to attend as a guest nation.

Richard on the board early, 1-nil.

Question two: According to the Federal Reserve Bank, how long does the standard U.S. dollar bill last before it wears out. And, yes, it does wear out. A., 12 months; B., 22 months; C., 25 months; D., 18 months.

(SMALL BELL CHIMES)

THE VOICE: Ali?

VELSHI: 25 months.

(BUZZER SOUNDS)

THE VOICE: I'm sorry, Ali, you are not on the money.

Richard, care to make it 2-nil?

QUEST: 22 months.

THE VOICE: Richard is on the money; 22 months is right.

The dollar bill actually lasts six months longer than a five dollar bill. So, if you have any old fives laying around at home, just send them to "Q&A".

Question No. 3: Ali, it is time to redeem yourself.

VELSHI: All right.

THE VOICE: According to CNNMoney.com's currency converter, which currency, right now, is worth more when converted to U.S. dollars or euros. A., Indian Rupee; B., Russian Rubble; C., Mexican Peso; D., Chilean Peso.

QUEST: I have-

(SMALL BELL RINGS)

THE VOICE: After a pregnant pause, Ali, that's you.

VELSHI: The Chilean peso?

(BUZZER SOUNDS)

THE VOICE: Wrong, Ali! Richard, care to make it a 3-nil route?

QUEST: Uh, no-I'm going to go for the Indian rupee, but it is a guess.

(BUZZER SOUNDS)

THE VOICE: Richard, I'm going to say, Mumafay (ph) and that's wrong. The actual answer is C., the Mexican peso.

VELSHI: Wow!

THE VOICE: The Mexican peso is valued at roughly 8 cents, the Russian rubble, 3 cents, and the Indian rupee is worth only 2 cents when exchanged for U.S. dollars. But gentlemen, The Voice would not exchange either of your for anything.

VELSHI: You are too kind, Voice.

And, Richard, you are once again, in the lead.

QUEST: Well, modesty forbids me from saying anything. But that will do it for this week. Remember, he's here, I'm there, Thursdays on QUEST MEANS BUSINESS, 1800.

VELSHI: And in the CNN NEWSROOM, 2 p.m. Eastern. Keep the topics coming on our blogs. CNN.com/QMB; and CNN.com/Ali. And tell us each week what you want us to talk about.

Richard, see you next week.

QUEST: Have a good week.

Well, of course, there are at least two sides to every story. Europe, the U.S., and Japan, have cast China as the villain in the currency wars. When we come back, we'll have a Chinese perspective.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And here, the news always comes first.

Some of Chile's 33 rescued miners may be released from hospital today, earlier than expected. Chile's health minister said most of them are in good condition. A few needed dental and eye treatment. President Sebastian Pinera visited the men today at the Copiapo Regional Hospital. He's promising to improve government oversight for Chile's workers.

Iran's president is creating fresh controversy during his first state visit to Lebanon. Mahmoud Ahmadinejad arrived to a hero's welcome in Bint Jbeil, a Hezbollah stronghold. He told the crowd, in his words, "The world must know the Zionists are to be gone." The region he's visiting in Southern Lebanon endured much violence during the 2006 Israel/Hezbollah war.

Pakistani police say they've headed off a plot to attack the prime minister. They say they've arrested seven suspects who claim to be taking orders from a militant in Pakistan's volatile tribal region. Police described the plot as being in its final planning stages. They say the suspects were going to hit the prime minister's completed with a car bomb.

More deadly violence in Afghanistan as eight NATO soldiers were killed Thursday in separate attacks. It was one of the worst in the West, where an improvised explosive device blew up, killing three soldiers. The latest killings bring the number of foreign troop deaths in the past two days to 14. NATO has not released the soldiers' names or nationalities.

Returning to the currency question now and the potential for currency wars, the global spiraling tensions, Brazil is a nation at the sharp end of this. Its currency has rocketed by more than 14 percent against the U.S. dollar, as foreign capital has flowed relentlessly onshore.

In the second part of our exclusive interview with the Brazilian finance minister, Maggie Lake asked Guido Mantega what Brazil is doing about it.

(BEGIN VIDEOTAPE)

MAGGIE LAKE, CNN CORRESPONDENT: You have been intervening to prevent the real from appreciating.

Is there a level that you're comfortable with or is it the pace of appreciation?

GUIDO MANTEGA, BRAZILIAN FINANCIAL MINISTER: (through translator): So what's going on is that we have the devaluation of foreign currencies like the U.S. dollar, like the yuan from China, and that put pressure on the real, on the one hand; and, on the other hand, we also have this huge capital inflow after Petrobras raised its capital. So we were buying all the dollars that came into the country and our international hard currency reserves in dollars have increased a lot.

We have only now increased the tax level for those applications in the financial markets. And we'll wait for a while to see if these different currencies will stabilize at a certain level and if necessary, we'll take future measures.

LAKE: Talk to me a little bit about -- about Petrobras. We've seen the shares drop dramatically recently. And there is some concern about the government increasing its stake, increasing its involvement in the company.

MANTEGA: The government has been the majority controlling stakeholder in Petrobras for a long time. What happened is that during this capitalization period, the government raised a little bit of its stake. Nothing will change in terms of Petrobras management vis-a-vis the government. And I can say this to you because I'm the chairman of the board of management.

Petrobras is one of the most profitable oil companies and has a huge portfolio for investments for the next five years. It is run like a privately owned company, with all of the efficiency and standards of management that any privately held company would have. I should say it is natural, after the largest capitalization procedure ever for a company at $70 billion, it's natural that after that, for a while, shares will be volatile and to up and down a little.

What really matters is that Petrobras' market value really went up because it received as collateral the five billion barrels that will come from the deepwater oil reserves in the future.

(END VIDEO TAPE)

QUEST: Japan's leader says he'll take resolute action, if necessary, to combat the strength of the yuan. Prime Minister Naoto Kan's comments came after he criticized South Korea and China for trying to keep their currencies weak.

China has maintained that the real problem is not the China -- the Chinese yuan, but rather low interest rates and quantitative easing in the West.

Victor Chu is the founder and chairman of First Eastern Investment Group, offices in Beijing, Shanghai and Hong Kong. The Chinese perspective on the currency wars.

(BEGIN VIDEOTAPE)

VICTOR CHU, FIRST EASTERN INVESTMENT GROUP: If you look at the history of the last five years, in fact, the renminbi, the Chinese currency, has appreciated against the U.S. dollar for more than 22 percent in real terms. So China has progressed along this undertaking, which is long-term. It will want a -- a move to a flexible exchange system, eventually, free -- free to convertible renminbi.

QUEST: But at the moment, it doesn't -- it sees the problem, the Chinese say, the problem is the low interest rates and the quantitative easing that Western -- the Fed, the ECB and the BOE have put in place.

CHU: Look, the Chinese position is that just looking at the currency valuation problem does not solve other people's problems. I mean, some of the problem on the U.S. and Europe, in the Chinese view, is due to insufficient saving and excessive spending and debt. And that's a point of view which I think has a lot sympathy amongst any people.

Secondly, they -- they realize that, right now, there's a lot of rhetoric, a lot of pressure. But ob -- obviously, an appreciation overnight between 25 and 40 percent, which is what some of the pressure is trying to bring to bear to China. That's got -- you know, completely out of the question, because that will -- that will create a massive social problem inside China itself.

QUEST: As you look toward Seoul and the failure of the IMF -- or at least the inability to -- to bridge this -- as we look toward G20 in Seoul, do you have confidence that the G20, now the crisis is over, is capable of dealing with this?

CHU: I do believe we are -- we're necessarily on the post-crisis era, Richard. I think we could be a pre-crisis of another bigger crisis if we don't get ourselves -- if we get our (INAUDIBLE) order and if we don't have urgent consultation to get a package of a manageable and deliverable measures that we can all subscribe to.

I think right now, short of the Chinese currency becoming freely convertible -- and that would take some time -- what would be effective and doable is to encourage the Chinese leadership to accelerate a program whereby Chinese corporates and high net worth individuals can, through a credit system, invest their R&D internationally or international equities and make the right investments. That will help everybody, including the Chinese investor, but also it would help countries which are badly in need of foreign direct investments, companies in the West which is trading at much more attractive rates now, because of the -- the lower currency, rather than shooting for a 25 to 40 percent appreciation, which we know is not -- really, it's not -- not doable.

QUEST: But when you think about social problems, if there was an appreciation -- a dramatic appreciation, that is, of course, because exports would be down and factories would be closed.

Is it really that finely balanced, do you think?

CHU: Well, you have to remember that out of 1.3 billion people, 800 million plus are still living in the rural areas. And they are living at a fraction of the income that you and I are making, where it's obviously the 350 million plus live in the coastal areas and they are what we can classify as middle classes.

So don't look at China as though everybody lives in Shanghai, Beijing and Hong Kong. Those who live in the rural areas are -- are having it pretty tough.

(END VIDEO TAPE)

QUEST: Victor Chu talking to me on the question, the other point of view, perhaps, as seen from the Chinese on the currency question.

OPEC has been meeting in Vienna, deciding whether production quotas will remain the same.

And are they happy with the price of oil at $85 a barrel, give or take?

We'll be in Vienna after the break.

(COMMERCIAL BREAK)

QUEST: OPEC, which has been celebrating its 50th birthday, today agreed to maintain its current level of output. It suggests that the 12 member oil cartel is satisfied with a crude price of around $80 a barrel.

Let's go to Vienna.

And our correspondent, John Defterios, is outside, I believe, the Vienna Opera House -- but, John, $82 and change tonight. OPEC seems to be able to live with that price per barrel.

JOHN DEFTERIOS, CNN CORRESPONDENT: In fact, there's been their target price, around $80, Richard, now for the past year. And they're very satisfied. The ministers, in fact, are behind me in the Vienna Concert House, taking in a concert from the Qatar Philharmonic Orchestra, celebrating, as you said, their 50th anniversary.

To be candid, they have a cala -- a gala dinner afterwards. And they were served up a pretty simple menu for this autumn meeting in the fact that they came in with their target price for OPEC crude around $80. Even though they're over producing by two million barrels a day, they didn't see a need to take action to reduce that quota. They didn't want to rock the markets. They didn't want to rock investors right now, even though all the hedge funds are going into this sector.

So they decided to basically keep on producing where they are and not change operations for the time being.

(BEGIN VIDEO CLIP)

ALI NAIMI, SAUDI OIL MINISTER: But it's not affecting the market. So -- which means the market needs whatever supply is being provided. So I think -- I think this is an ideal situation we are in now. The market is well supplied. The demand is on the increase.

ABDALLA SALEM EL-BADRI, OPEC SECRETARY GENERAL: No, no. Abu Dhabi will not slow down the economic growth. No. It has -- it would have a minimum effect on the growth and maybe it will go higher or maybe I'll agree with you. But -- but at this price, from $75 to $85, one might affix the growth.

(END VIDEO CLIP)

DEFTERIOS: So we're hearing from the secretary-general and, of course, the most powerful producer within OPEC, Ali Naimi of Saudi Arabia. Now, they sounded upbeat, Richard, but they still have concerns about a double dip. And this is the conversation you had there with Victor Chu, with the pressure being put on China. There is concerns within industrialized nations that they will slow down in the first half of 2011.

So if that is the case, OPEC said today that they will be prepared to take oil off the market. It doesn't appear that way right now. And, again, they have record revenues of $625 billion for the year, so they're quite happy to be where they are.

I'd like to project for the future. They do have a challenge coming forward. And I want to put up a screen here of the big five producers within OPEC right now. And this is the proven reserves that they're claiming. Some better than 800 billion barrels of the one trillion barrels under the umbrella of OPEC -- Saudi Arabia, Venezuela, Iran, Iraq and Kuwait. I want to point to Iran and Iraq, because before the meeting, they both raised their proven reserves to 150 billion for Iran and 143 billion for Iraq. Iraq had a boost of 24 percent. And then the week after, Iran came in and said well, we now have 150 billion. And this is going back to the days, as you know, to the late '80s and early '90s, when Iran and Iraq had a war and followed it up with quota bashing each other, wanting to have the same sort of production.

So this is going to be a problem again in the future, because Iraq is not part of that quota system. And it's something to keep an eye on, not now, because oil prices are $80 a barrel, but perhaps in the next two years.

QUEST: All right, John Defterios in Vienna at the OPEC meeting.

Many thanks.

Now, lower taxes and government-backed plane financing -- Air France's chief exec says the UAE's aviation industry, the Gulf aviation industry, has an unfair advantage. The chief executive of Dubai Airports responds after the break.

(COMMERCIAL BREAK)

QUEST: Airline chief execs from across Europe and the U.S. will meet in London on Friday, tomorrow. Amongst the agenda items will be the encroachment by Gulf Airlines into the European market. Air France chief exec, Pierre-Henri Gourgeon said state aid for certain carriers poses a threat to European airport hubs. Government-backed financing is banned for airlines in the five countries where Boeing and planes are built. That's the U.S., U.K., France, Spain and Germany.

It is a row that has gone on for many years -- are the airlines of Qatar, Dubai, Abu Dhabi and the Gulf -- are they subsidized unfairly to the point where European airports could be at risk?

Paul Griffiths is the chief executive of Dubai Airports. It manages Dubai International and Al Maktoum International, under construction.

He told me quite clearly he was vigorous in his defense against the Air France comments.

(BEGIN VIDEOTAPE)

PAUL GRIFFITHS, CEO, DUBAI AIRPORTS: We are fairly wound up about the issue. That's because here in Dubai, we want -- run a very professional aviation model. It's very, very close coordination between Emirates, the other airlines here, of which there are 130 serving our airports, the government and the various other agencies. And I think we take an exception here to being accused of subsidies in other sort of non- commercial practices, when, actually, it's the consumers that are making the choice. And they're saying they prefer the aviation model that's operated here in Dubai to the model operating in Europe and elsewhere.

QUEST: Air France says that the way airports like you and Doha and, indeed, Abu Dhabi, operate poses a real threat to the European hub model. I suspect you're going to tell me you don't care.

GRIFFITHS: Well, I'm going to tell you, Richard, that I think they're absolutely right. But when you say threat, that's not necessarily a bad thing. What we are actually saying here is the aviation model in Dubai and other parts of the Gulf is designed around passenger convenience. It's designed to actually cut journey time significantly, to improve surface and lower prices.

Now, if that's a threat to the European aviation model, then, actually, let the consumer decide whether that's a good threat or a bad one.

QUEST: But, Paul, come on, you know, fair games, as they used to say. It is ira -- it is not by accident that the three most aggressive airports are the three in the Gulf that have the loosest regulatory regime, that have the -- the governments that really plow money into them and that's an unfair advantage over other airports.

GRIFFITHS: I'm not sure that's an unfair advantage, Richard. All we're saying here is governments here recognize the value of aviation to the gross domestic product of the region. And that's why they're prepared to invest in the sector. And, also, we do not have these taxes which just...

QUEST: What...

GRIFFITHS: -- which just take value out of the sector -- one billion euros in Germany, for example, just announced in June. In Holland, I think they were seeking to raise 300 million euros from a tax that actually cost the industry four times that because of the lost passenger traffic.

So tell me why it's an unfair advantage that we just don't have those bureaucratic regimes and are profiting from the success of that?

QUEST: Finally, Tim Clark at Emirates says he would buy 120 A380s if he had room to park them.

Are you going to build more airport for him to park his big planes?

GRIFFITHS: Absolutely. On the 27th of June this year, we opened what will be the world's largest airport at Dubai World Central, Al Maktoum International. That will ultimately have the capacity to handle 160 million passengers and 12 million tons of freight.

So, yes, we will have enough space to park as many planes as Tim sees fit to order. And the thing is, we work very, very closely with Emirates and all the other airlines here in Dubai to make the whole miracle of aviation here tick over like a very, very efficient Swiss watch.

What's the problem there?

(END VIDEO TAPE)

QUEST: A Gulf airport and a Swiss watch -- you don't get that everyday.

That was Paul Griffiths, the chief exec of the -- of Dubai Airports, joining me yesterday.

Now, Guillermo is at the World Weather Center -- Guillermo, now, all - - not only on this program, but we're on my -- I was able to enjoy listening to you -- your simultaneous translation.

How many other languages do you speak?

GUILLERMO ARDUINO, CNN METEOROLOGIST: No, I speak a little bit of Italian and that's it. That's...

QUEST: Hmm.

ARDUINO: That -- those are my roots. But let me tell you, let me tell you one thing. It's not simul -- simultaneous translation. What I did was simultaneous interpretation.

QUEST: Ooh.

ARDUINO: OK?

QUEST: Don't -- don't think you'll get paid any more for that.

ARDUINO: No, absolutely not.

And you know what?

It was my first. So I'm still tired. I'm very tired. I...

QUEST: I said the rest of us were exceptionally impressed, because I put it to you this way, it's hard enough for me to talk English in one language, but to go back and forth.

Anyway, the weather forecast. I'm off to Brazil tonight.

What's the weather like there?

ARDUINO: Oh, really?

Nice.

You know what?

Brazil is now going into the summer, gradually. Of course, it's springtime. I'm going to tell you in a second what's going on and I hope I get to those maps. But let me tell you, you are lucky, because the weekend is not going to be a new -- a nice one in London, even though now it doesn't look that bad. The next 48 hours, you know, we have to say that it's not going to be abundant rain but it's not the glorious rain that we got before.

Lucky you're not going to Cuba, because here we have a tropical cyclone. It's a tropical storm. And you see how the clouds are moving into South Florida, too. Not a nice day to be in Key West right now, 50 miles away from Cuba. Key West is having some bad weather. And look what's going to happen. The National Hurricane Center is saying, hey, listen, it's not going to be a hurricane. It will stay on a tropical storm basis. And because of the interaction with the land, it's going to weaken into a tropical depression.

So I'm going to show the likelihood of that path. The red line is the National Hurricane Center and then all other models are sort of crazy and moving erratically. But we think the National Hurricane Center has zeroed in exactly on what's going to happen.

Before I tell you about the rain, let's take the other router. I'm going to show you now with Taylor Ward in the background, is going to operate the -- the Google Earth animation. And we're going to fly into Cuba. So you see the cities that we're talking about that will see -- will be impacted by the storm. Already, Pinar Del Rio, which is a big city, saw 100 millimeters. It's going to get more.

Let's move on to the coast and you will see Hokainito (ph), a small town. It's going to get some more rain. Also, close to the coast and we'll see a lot of winds. And these towns here, even the capital, are going to be affected by high waves and also a lot of rain and high winds.

Let's come back. We're not going to see -- we're going to see mostly rain up to 15 or 20 centimeters. At times, especially on the coast, it's going to be a little bit worse.

And for our Asian viewers -- and Richard is not going to Asia, but we're looking at this other cyclone close to Guam that is taking general aim at Luzon in the Philippines. We'll see what happens. So we'll keep you up to date -- Richard, I think Brazil is going to be fantastic. It's going to be warm, nice, and a lot of fun.

QUEST: Well, whatever the first two are, I'm going there to work, so its future cities. I'll be -- I'm back on Monday.

ARDUINO: All right.

QUEST: All right, Guillermo, many thanks, indeed.

ARDUINO: Thank you.

QUEST: We'll have a Profitable Moment for you after the break -- currency wars -- what they really mean.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

The problem with currency wars is once they start, they're very difficult to stop. And unlike the great devaluations of the 1930s, today's stop action by nations great and small seemingly have limited effect -- that is, until everyone else joins in.

There are many arguments used to justify currency action. Switzerland in 2009 said it was protecting its position when it intervened to bring down the value of the franc.

The Japanese claimed they were merely taming disorderly markets by holding down the value of the yen.

Oh, yes, everyone has a good reason for tinkering with their currency -- until the race to the bottom begins.

Can the world come out of this together and sort something out?

They didn't do a very good job at the IMF in Washington last weekend and no one should have limited hopes for the G20 in South Korea. This is a classic case where everyone shouts, "Something must be done," and then quietly whispers, "Do as I say, not as I do."

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

"WORLD ONE" starts right now.

END