More haste, less speed

(China Daily)
Updated: 2011-04-01 08:00
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China's insistence on moving gradually on global monetary reform does not mean the country is not fully aware of the necessity to overhaul the international monetary and financial system in line with the new global economic reality.

Instead, it is the sober understanding that the reform process must be long-term and complex that makes Chinese policymakers refrain from embracing any suggestion of a quick fix, especially when the world economy has achieved so little in rebalancing itself since the 2008 financial crisis.

At the G20 meeting in the eastern Chinese city of Nanjing on Thursday, French President Nicolas Sarkozy warned that the current global monetary and financial system is so unstable it could tip the world economy back into crisis again.

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But his suggestion, as well as that of US Treasury Secretary Timothy Geithner that fast liberalization of the Chinese currency as a new international reserve currency should be put on the agenda, miss the target.

Admittedly, the rapid rise of China to become the world's second largest economy and its growing integration with the rest of the world make the renminbi a natural choice to be part of any functioning international monetary system in the future. Yet, haste will not necessarily bring success.

On the one hand, fast liberalization of the renminbi offers no guarantee that debt-laden rich countries will be able to put their own economic houses in order any time soon.

In the absence of painful restructuring efforts, it will be hard for some major developed economies to correct their long-term ills of excessive borrowing and consumption.

As their central banks keep printing more money to dilute debts, it is highly doubtful that these economies will deliver real and sustainable growth to address their imbalances.

On the other hand, the risks that can come from the volatility of quickly liberalized currency trading has been underestimated. Some developed countries have failed to recognize the important role that the Chinese currency played as a stabilizing force during the global financial crisis.

While many developing countries understand what the lack of stability in the global monetary system would mean to them.

Such unfairness should certainly be addressed. And it will only be possible with credible reform of the global monetary and financial system.

The Nanjing meeting is not expected to yield any formal political decisions. Still, the differences that exist over the process of reforming the international monetary system justify more such discussions for building a consensus among G20 economies.

With the worst of the global economic crisis seemingly behind us, there is the temptation not to act. But a sense of urgency is surely needed to prevent the world from sliding back into instability and crisis. However, we must be cautious and get our priorities right first.

(China Daily 04/01/2011 page6)