The G-20 communique is out. It could have been worse; thankfully, calls for stimulus mania have fallen on deaf ears. The main agreements include bringing IMF funding up to $750 billion and setting aside an additional $250B for trade finance. Meanwhile, regional lenders like the Asian Development Bank (ADB) and African Development Bank (AfDB) will be allocated another $100B to provide emergency funding. Still, the measures on tax havens may leave something to be desired as a "name and shame" strategy may not prove to be enough to prevent future Granite-Northern Rock-style episodes.
As expected, there was no substantive discussion on establishing an alternative reserve currency. Nonetheless, Russia indicates that it will press the issue in the coming months as dollar devaluation presumably gains steam as it has today:
Russia proposed on Thursday launching a IMF or G20 study on creating a new international reserve currency, but the idea was not discussed at the London economic crisis summit. Strengthened regional currencies would be a basis for the new unit, which could also be partially backed by gold, Russia said in a statement released on the sidelines of the summit.
China and Russia in recent weeks have floated ideas about reducing reliance on the U.S. dollar as the world's primary unit of foreign exchange, possibly by developing the Special Drawing Rights issued by the International Monetary Fund. But the G20 Financial Summit has focused firstly on promoting economic growth and repairing the financial system -- not on the longer-term task of overhauling the foundations of the global monetary system.
However, the idea is gaining some momentum since one underlying cause of the current crisis is viewed as heavy reliance on U.S.-dollar-based assets as the only highly liquid instrument to invest in. "The new global reserve currency has not been discussed at the summit. We only discussed it at several bilateral meetings," Russian President Dmitry Medvedev's chief economic aide Arkady Dvorkovich told a news briefing.
The Russian statement called developing the global currency system a very important issue for strategic, rather than tactical, solutions to the financial crisis. It said that "we should return to this topic in the months immediately after the summit".
The reasons for promoting discussion are that currency markets are extremely unstable, new regional currencies are strengthening and the euro's launch showed how it could promote fiscal discipline. At the same time, countries with major currencies "do not bear sufficient responsibility for macroeconomic policies," the statement said...[take that, US dollar]
"On this basis we conclude that it would be wise to support the creation of strong regional currencies and to use them as the basis for a new reserve currency. One could also consider partially backing this currency with gold," Russia said. "It is not our goal to destroy existing institutions or to weaken the dollar, pound or euro. We are simply calling for a joint assessment of how the global currency system can most favourably be developed for the sake of the global economy."
Accordingly, Russia proposed that the IMF or a G20 working group prepare studies, for review by G20 finance ministers and central bankers, on:
- Widening the list of currencies used as reserve currencies - by taking cooodinated measures to stimulate the development of major regional financial centres;
- The creation of a supranational reserve currency to be issued by international financial institutions conduct.