For Economics Professor Charles Wyplosz there is no perfect global economic governance formula.
Professor Charles Wyplosz gave a public presentation yesterday predicting not only that France’s year at the head of the G20 will end without success but that the G20 as a group will be unable to solve the world’s economic woes in the long run.
At the Institute’s auditorium in Barton Park, Professor Wyplosz dissected France’s ambitious goals for its year at the helm of the G20 which include reforming the international monetary system and reducing the unipolar domination of the US dollar as well as cutting down speculation.
While there are major flaws with the international monetary system, professor Wyplosz said the issues being focused on in the G20 are not the right ones and are riddled with misperceptions.
“Of course China is going to be the biggest economy in the world but its currency is a least a few decades off from reaching international status.”
Discussing France’s goal to reduce the domination of the US dollar, Professor Wyplosz said there will be no competition for the US dollar as a world currency for some time to come. By and large the US dollar as an international currency has worked and the American government is not really getting rich off of this. The fact that the US dollar is the de-facto international currency only brings in roughly 0.05 % of gross domestic product per year to the country, he said. Since 2007 currencies have behaved as they should with depreciation in countries which are doing badly and appreciation in countries that are doing well so any attempt to control this would have been a mistake, he explained.
“There is no currency war.”
What happened with the Brazilian currency was good for the world and perhaps even good for Brazil, he said. China’s exercise of control over its currency’s exchange rates means that they must amass large amounts of reserves in US dollars. They do not like it but they do not have any alternative. This is mostly a problem for China and should not be considered as much of a problem as it is for the international monetary system, according to professor Wyplosz.
“There is no perfect formula to tackle global monetary issues.”
A small group of countries such as the G7 lacks legitimacy because it is not inclusive and a large group of countries such as the United Nations is ineffective because there are too many differences for decisions to be made, Professor Wyplosz declared. “In the case of the G20, except for meetings and communiqués nothing much has been accomplished.” Commenting on German Chancellor Angela Merkel’s proposal to have an economic security council in the UN, Professor Wyplosz said it would end up being very similar to the G20.
“Fixing the international monetary system would mostly require boring technical modifications.”
This would include making agreements such as Basel III, a group of global regulatory standards on bank capital adequacy and liquidity, compulsory and supervised, but this does not seem to be happening, Professor Wyplosz said. The G20 should be working to improve the resilience of banking systems but nobody is even trying. This is also the case with France’s goal of reducing speculation. Lots of the important work the G20 does happens in technical groups lower than head of state level. While these groups make good recommendations, they have no decision making power, he said.
“What will the French do about the IMF? Nothing.”
Professor Wyplosz also discussed the role of the International Monetary Fund. He said criticism of the IMF focuses on it having a monopoly on rescuing countries in financial difficulties and its decisions being politically motivated. The French will not be able to do anything about this, he said.
Responding to questions from the audience about the United Nations and what the French were doing to bring the G20 closer the UN system, Professor Wyplosz said these are political and not economic issues.
Professor Charles Wyplosz is Professor of International Economics at the Institute as well as Director of the International Centre of Monetary and Banking Studies. He was recently nominated to the European System of Financial Supervision’s Systemic Risk Board. Last year he was part of a working group that focused on balancing France’s budget. His main research areas include transparency of monetary policy, European monetary integration, fiscal policy discipline, economic transition and current regional integration in various parts of the world.
An article on this event appeared in French in the newspaper Le Temps on 13 April.