Filed under: Economics
In my last blog l suggested that the most important meeting to be held during the G20 London Summit would be the G2 meeting for the first time between US President Barack Obama and the Chinese President Hu Jintao, a point also made by the Economist.
Now, what do you think is uppermost in the minds of the Chinese? Well, it is not the regulation of global finance, particularly hedge funds, as it is for the French and the Germans. It is not a continued fiscal stimulus to the global economy, as it is for the United States and United Kingdom. Nor is it how the G20 can prevent a retreat into protectionism and promote free trade, in circumstances where many economic historians point out the parallels with the 1930s. Nor is it how the IMF will need more money to bail out countries going bust like Iceland, Hungary and Ukraine – since the Chinese have already agreed to help as long as the IMF is reformed and China has more say. Nor is it a clampdown on offshore tax havens, as governments desperately attempt to bring as much revenue as possible back onshore to boost state coffers. Nor is it environmental and development concerns, as the Chinese are starting to pursue a low carbon future and have already become a major source of funds to the developing world.
No, it’s China’s plan to end the dollar era. In China it appears to be a debate between the likes of Zhou Xiaochuan, governor of China’s central bank, who has put forward a credible proposal for a reserve currency to rival the greenback (Financial Times, 24 March), and the likes of Professor Yu Qiao of Tsinghua University discussing how Asia can protect itself from a dollar default (Financial Times, 1 April). The latter response is not surprising given that the Chinese are the largest holder of US dollar financial assets and they express the same anxiety as savers who fear a run on a bank. So it is understandable that China wants to replace its mountain of dollar assets with heaps of other currencies. It would be in China’s interest to have another safe reserve currency and take an active role in the reshaping the world monetary economy.
So while the focus during the next day or so will be on all the other issues mentioned above, in the long run the G20 London summit is going to be remembered as the beginning of a process, possibly taking up to 20-odd years, to replace the greenback and a world economy working for the Yankee dollar.
April 1, 2009
Boris Johnson demonstrated his neo-liberal credentials once again in his latest Daily Telegraph column by suggesting that the slogan for the G20 protestors (or “the G20 mob” as he prefers to call them) should be “What do we want? Free trade!” My response would be “Jobs, justice and climate” – the banner under which tomorrow’s G20 demonstration in London has been organised.
The dual challenge for the G20 Summit, the main thrust of which is a major fiscal stimulus and banking reform to counter the global recession, is to promote economic recovery without further damaging the environment and to limit the impact of the economic crisis on the developing world.
It is crucial that development assistance should be maintained, at a time when aid and Foreign Direct Investment have fallen and the populations of developing states increasingly rely on money transfers from migrants in the developed world.
Also, the developed world must keep to its commitments made at the 2007 Bali conference on climate change, in preparation for the negotiations over the post-Kyoto agreement in Copenhagen at the end of this year – that is, to trim our own lifestyles while allowing poorer countries to develop without strings and conditions, and assisting them with technology transfer and innovative finance.
As Nicholas Stern and his colleagues have recently pointed out (in An outline of the case for a ‘green’ stimulus), in the developed world the best way to boost employment during a recession while at the same time reducing carbon emissions is to invest in new green industries like renewable energy projects. We should put more money into energy efficiency rather than exporting our waste to the developing world.
Examples already exist. In the USA, Obama’s economic package proposes to put billions of dollars into green jobs. A third of China’s recovery programme is in creating green jobs. And Germany is directing 19 per cent of its recovery expenditure into new green industries.
London needs to show that we can do this as well. With just over 50 per cent of humanity now living in cities, which are responsible for 75 per cent of CO2 emissions, we could make a real difference. The commitment of our current Mayor to the ideology of neo-liberalism is of course a major obstacle here.
That said, the main show at the G20 will be Obama’s first meeting with the Chinese premier. At the end of the day, it’s the G2 who will determine what really happens to the world economy.
March 27, 2009
A hobby horse of mine in international development matters has been the lack of focus on or coverage of remittance flows to the developing world – that is, the money transfers from migrants working in the developed world to their countries of origin. For example, in a normal London high street the newsagent offering money transfer services probably provides a bigger flow of cash to the developing world than your local Oxfam shop does. And up to a fifth of GDP in countries like Jamaica, Lebanon and Jordan is made up of remittances from their ex-pats.
So l am glad to see that the World Bank has begun to do regular research into this unsexy area of the world economy and that the Economist in its 19 February edition (‘Trickle-down economics’) has taken notice of this, in the context of the slump in the world economy. The Economist notes that flows from remittances are themselves likely to fall, maybe up to 6 per cent globally, but that private-capital flows such as equity and lending by foreign banks have already dropped by 50 per cent. With official development assistance also likely at best to be capped by developed countries cutting their public expenditure, this clearly suggests that remittances are a much more reliable source of cash for the developing world.
In the meantime, the main transmitters of these critically important cash flows, the money transfer agents, find themselves facing over-regulation by the Financial Services Authority, if the presentations and discussions at the annual conference of the UK Money Transmitters Association that I attended today are anything to go by. It’s a real pity that the FSA did not keep a better eye on our banking friends in the City over the past decade or so, and then just maybe we would not be where we are with the economy at this moment. Surprise, surprise, instead of going for the big players in the money markets the FSA has gone for small players instead – the money transfer agents who have played such a crucial role in providing cash to the developing world.
February 26, 2009
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