A Global Financial Architecture in Transition
At this Beijing conference, participants expressed the failure of the institutional underpinnings of western countries” and called for a need for a new economic model. A great deal of time was devoted to discussing the critical shift in emphasis on the main factors to drive China’s growth over the medium-term toward services and consumption and away from industrial production, capital investment and exports. The debate centered on “currency wars” as the most prominent expression of a generalized move towards greater protectionism and an overall failure among emerging markets in particular the BRICs to coordinate policy views. The discussion on global imbalances was seen mostly as an issue between the U.S. and China, a structural phenomenon with nominal exchange rate realignment having little or no impact. The G20 French agenda was praised for including new priority dimensions like the role of emerging markets currencies, regional financing arrangements and development of local capital markets. The case for reform of the international monetary system was also recognized amid lack of payments and increasing importance of emerging markets that continue to be sidelined by today’s arrangement. Adoption of a multiple currency system and currency competition was mentioned as desirable reform outcomes. However the reform approach was criticized as suffering from the fact that certain elements related to the system were discussed only in isolation (e.g. SDR and financial safety net). The innocent bystander problem due to sudden capital stops was also stressed upon.