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September 10, 2004—The current structure for international economic and financial coordination is inadequate and needs fixing, including replacing an increasingly obsolete G7 with several new international groupings. This is the central finding of a new report, “International Economic and Financial Cooperation: New Issues, New Actors, New Responses,” released today at the Council’s Maurice R. Greenberg Center for Geoeconomic Studies. The paper is the sixth title in the Geneva Reports on the World Economy series published by the International Center for Monetary and Banking Studies (ICMB) and the Center for Economic Policy Research (CEPR).
Written by Peter Kenen of the Council on Foreign Relations and Princeton University, Jeffrey Shafer of Citigroup and a former U.S. Treasury undersecretary, Nigel Wicks of Euroclear and formerly of the British Treasury, and Charles Wyplosz of the Graduate Institute of International Studies and CEPR, the report describes how the number of important actors in the global economy has expanded, now including several emerging economic and financial giants. In addition, a decade ago some of today’s important currencies, like the euro, did not exist, while others, like China’s renminbi, were insignificant. Current cooperative arrangements have worked reasonably well for a long time, but the report concludes there is now need for significant reform to sustain effectiveness, legitimacy, representativeness, and accountability.
The authors examine discontent with the governance of the IMF and growing resistance to the agenda-setting role of the G7. For example, three of the G7 countries— France, Germany, and Italy— are members of the euro area yet cannot speak for it, and another G7 country, the United Kingdom, can no longer be regarded as a key currency country. Also, one key currency country, China, is not a member of the G7.
The authors make a number of proposals to reform the process for enhancing international economic and financial cooperation, including:
- Establishing a new grouping, the G4, to bring together the key currency countries/regions (the United States, the euro zone, Japan, and China) to deal collectively with exchange rate and balance-of-payments adjustment.
- Creating a new agenda-setting body for the international financial system. The G7 does not include some of the critical actors, while the G20, with 40 ministers and central bank governors around its table, is too large to be effective. A new body, provisionally described as the Council for International and Economic Cooperation (CIFEC), should serve as the agenda-setting body, providing strategic direction for the functioning and development of the international financial system and exercising informal oversight over the various multilateral institutions and forums involved in international economic cooperation. The CIFEC should have no more than 15 member countries, represented by their finance ministers. The Secretary General of the U.N., the Managing Director of the IMF, the President of the World Bank, and the Director General of the WTO would be invited to its meetings.
- Strengthening the institutional structure of the IMF. The Fund will continue to play a central role in international financial cooperation, but the role of the Executive Board should be upgraded and the representation of the European countries who are members of the EU should be consolidated.
The executive summary of the report is at cfr.org.
The International Center for Monetary and Banking Studies was created in 1973 as an independent, non-profit foundation. It is associated with Geneva’s Graduate Institute in International Studies. Its aim is to foster exchange of views between the financial sector, central banks and academics on issues of common interest. It is financed through grants from banks, financial institutions and central banks. The Center sponsors international conferences, public lectures, original research and publications. It has earned a solid reputation in the Swiss and international banking community where it is known for its contribution to bridging the gap between theory and practice in the field of international banking and finance.
The Center for Economic Policy Research is a network of 600 Research Fellows based throughout Europe, who collaborate through the Centre in research and its dissemination. CEPR helps its Research Fellows to develop projects, obtain their funding, administer them and disseminate their results. The Center’s research ranges from open economy macroeconomics to trade policy, from the economic transformation of Central and Eastern Europe to regionalism in the world economy.
Founded in 1921, the Council on Foreign Relations is an independent, national membership organization and a nonpartisan center for scholars dedicated to producing and disseminating ideas so that individual and corporate members, as well as policymakers, journalists, students, and interested citizens in the United States and other countries, can better understand the world and the foreign policy choices facing the United States and other governments.
The Council’s Maurice R. Greenberg Center for Geoeconomic Studies works to promote a better understanding among policymakers, academic specialists, and the interested public of how economic and political forces interact to influence world affairs.
Contact: Marie X. Strauss, Communications, 212-434-9536.