My posting on Feb. 20 „G-20 Finance Ministers” put some hope into the planned Chinese seminar on global imbalances to take place in Nanjing on March 30. This hope has been in vain: The seminar continued to show the existing divisions of positions, mainly between the US and China, on how to reduce these imbalances. The major issue was how to use the International Monetary Fund, and especially its Special Drawing Rights, to combat such imbalances. Specifically, French President Sarkozy discussed the issue of whether the Renminbin should be included into the SDR basket, triggering strong divisions of opinion, with the UK (Mervyn King) and the US being strictly against. While for the US – who have a veto power on all things concerning the IMF – Treasury Secretary Tim Geithner explicitly stated that global imbalances were caused by tensions between freely convertible currencies and “tightly managed ones” (i.e. especially the Chinese one), his Chinese counterpart stated that global monetary reform would be a long drawn-out process where every member in the global system needed to contribute. Thus, while China previously had called for the Renminbin to be included into the SDR basket, at this seminar they showed their reluctance to do this quickly, seeing that this would probably require them to significantly loosening their tight management of the exchange rate, making their National Bank independent and allowing free capital flows – all conditions named by Geithner.
Thus, another opportunity was lost for the G-20 to show that they see themselves as effective leaders of global economic policy. Rather than showing leadership and a way forward, the individual participants showed their deep-going dissension on important joint issues. The IMF would be ready to assume a greater role, a possible further extension of the role of Special Drawing Rights in international balance-of-payments financing – after the inclusion of the Renminbin – might have contributed to lessening the need for emerging countries to accumulate huge foreign currency reserves, reducing the role of the US Dollar in international financing and thus the need for the global economy to rely on heavy US current account deficits to provide global liquidity.
The Chinese mountain has give birth to a miscreant G-20 mouse!