Money

Forum urges tightening of financial regulatory system

By Xin Zhiming (China Daily)
Updated: 2010-09-08 09:47

Receptionists with Dagong Global Credit Rating Co Ltd work the front desk at the company's office in Beijing. [Nelson Ching / Bloomberg]

Political adviser: US took advantage of dollar's status to grab wealth

BEIJING - The world must strengthen financial regulatory systems, especially that of major reserve currency issuing countries such as the United States, said a senior political advisor on Tuesday.

The US has taken advantage of its status as a major reserve currency issuer to grab other countries' wealth, which is a source of the 2007-2008 global financial crisis, said Zheng Xinli, deputy director of the economic committee of the Chinese People's Political Consultative Conference (CPPCC), the nation's top policy advisory body.

He made the comment at the 21st Century Forum in Beijing Tuesday.

The US was widely criticized by forum participants for both lax monetary policies and deceptive financial derivatives, which resulted in financial bubbles.

"We need to keep a comprehensive measure of government budgets under control," said Michael Boskin, senior fellow at the Hoover Institution and professor of economics at Stanford University. "One of the major causes of the crisis and recession was easy money for too long."

"Global investors spent real money to buy US derivatives and then the value of many such products simply evaporated in the crisis," said Xu Shanda, an economist and former deputy chief of the nation's statistics bureau. "The US has gained from the losses of investors from other places in the world."

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The international rating agencies, mainly the three US-based units, added fuel to the fire.

"They have directed much international capital into highly risky regions (in the US) and failed to play their due role as the last fortress of financial security," said Zheng.

Zheng said "distorted" rating standards must be improved.

Currently, those agencies focus on factors such as the level of privatization, economic liberalization, whether the rated economies issue international reserve currencies and per capita gross domestic product, he said.

As a result, the rating of some borrowing nations is much higher than creditor countries. The high rating has greatly helped some borrowing countries save financing costs since investors are willing to buy their financial products, such as bonds, with lower returns, Zheng said.

"It's really not a good idea to rely on rating agencies," said Lawrence Lau, economist and former president of the Chinese University of Hong Kong, at the forum.

Zheng called for strengthening financial supervision, especially of those reserve currency issuing countries, such as the US. The international community also needs to establish a fair and normal rating system and break the currency monopoly, he said.

And the yuan should be included in the international reserve currency regime, which should be made more competitive, he said. "In such a competitive mechanism, once a currency become risky, investors could dump it."

More than 800 political and business leaders and scholars from China and abroad participated in the forum, which was organized by the CPPCC.