Creating a strong G20
- By Xu Hongcai
0 Comment(s)
Print
E-mail Beijing Review, April 21, 2016
Moving forward
The proposed G20 permanent secretariat could be set up under the IMF's support. The IMF has played a unique role in coordinating macroeconomic policies in the international community. In particular, it has been active in dealing with the global financial crisis. Furthermore, it has abundant experience in global economic and financial governance, and is very familiar with the internal workings of multilateral organizations. Under China's presidency this year, such a proposal to establish a permanent secretariat could be expected to gain support from G20 members.
A "5+1" global macroeconomic policy coordination mechanism could also be formulated. The "5+1" would be composed of the United States, the EU (eurozone), China, Britain and Japan plus the IMF. The currencies of those five entities are already included in the IMF's special drawing rights (SDR) basket.
Since those six members have a profound influence on the world economy, enhancing the coordination of their macroeconomic policies will help to effectively control market volatility and risk. It could also maintain the stability of the global financial system and promote a strong, sustainable and balanced world economy.
Regular meetings of the "5+1" should be organized to focus on their policies concerning fiscal, monetary, foreign exchange, trade, structural reforms and other affairs. The objective is to enhance stability within these five major economies while reducing negative spillover effects to other countries.
Finally, the usage of the SDR could be scaled up. Currently, the international monetary system is still dominated by the United States. That means the majority of the fiscal responsibility has been shouldered by U.S. dollars. That is not only a risk for the overall stability of the global financial system, but is also bad for the independence of the U.S. Federal Reserve's (Fed's) monetary policy. In a lot of situations, the Fed faces a difficult choice between the stability of the U.S. dollar's value and the balance of supply and demand of global liquidity. Promoting the status of the SDR in international payments as a supra-sovereign currency could help reduce the risk in the international monetary system, and it will also help increase the IMF's financial resources.
In what ways we could expand the SDR's usage? One way might be by revising relevant regulations regarding the SDR, including its valuing and issuing methods, and also establishing a settlement relation with other currencies.
The SDR's usage could also be extended to international payments among IMF members and in crisis-relieving assistance. The SDR basket could also be used as the pricing unit in international trade and investment. In addition, the IMF could provide SDR loans to its members' central banks as well as that of other multilateral development banks. The World Bank, for example, could as a result promote the usage of the SDR in key infrastructure investments around the world.
In regard to the implementation of these suggestions, it would be better to build an atmosphere conducive to follow-up actions. Seminars on the topics could be organized by think tanks to initiate academic discussions on related issues, including the organization framework, rules of decision, operational mechanism and so on. Meanwhile, China could actively communicate with relevant parties informally, trying to reach a better consensus.
After that, a formal proposal could be suggested at the upcoming meeting for G20 finance ministers and central bank governors in July. A resolution regarding the topic could be finalized during the G20 Summit in September.
The author is director of the Economic Research Department at the China Center for International Economic Exchanges
Go to Forum >>0 Comment(s)