Monetary system reform

Today, the most urgent task for the G20 is reform of the international monetary system. With sharply fluctuating exchange rates, it is difficult to monitor international capital flows, identify financial risks in advance, and save the global system once a crisis happens. If the current international monetary system cannot be successfully reformed, a new great financial crisis will soon be upon us. So, the G20 should focus on its historical mission to urgently reform the international monetary system.

The outbreak of the global financial crisis in 2008 reflected the inherent vulnerabilities and systemic risks in the existing international monetary system. It has demonstrated that using a national currency as the global reserve currency is not suited to the world economy today, as the issuing countries of reserve currencies are constantly confronted with the dilemma of whether to achieve their domestic monetary policy goals or meet other countries' demand for reserve currencies.

The G20 should set up a permanent secretariat within the International Monetary Fund to improve its policymaking and implementation capabilities. Through in-depth communication, the G20 should put together a reform agenda for the international monetary system. This reform agenda should include a consensus on the guiding ideology, basic principles, clear reform objectives, a concrete action plan, and the respective responsibilities of each nation.

The traditional function of the IMF is to advance international trade and promote healthy balance-of-payments situations. The IMF should fully exercise its role and turn the Special Drawing Rights into a new international reserve currency. It should also supervise the economic behavior of its member states and provide an early warning system if there are any problems with any of them, as well as rescue economies in the advent of a financial crisis. Broadly speaking, the IMF should prevent systemic risk, secure global financial stability, and in particular, supervise the issuance of major international reserve currencies and the cross-border flows of international capital.

Meanwhile, it has become necessary to gradually change the current monetary system, which is centered on the US dollar, to a diversified international monetary system consisting of multiple currencies, such as the Special Drawing Rights, the US dollar, the euro and the renminbi. Reforming the international monetary system through the diversification of international reserves would permit the US dollar to continue to play an important role in the long term, but other currencies such as the euro, sterling, the yen, and the renminbi would play a greater role as international reserve currencies.