Global financial reform needs a bolder push

Source:Global Times Published: 2012-6-20 0:55:05

At the G20 summit in Los Cabos, Mexico, the focus was on the financial crisis and strengthening the firewall of the International Monetary Fund. The discussions all concern the international financial pattern. The international financial order represents the allocation mechanism of economic interests at the highest level. Any adjustments to the system may change the relationship of interests among countries. Therefore, all countries are very cautious about it.

The world financial system based on the IMF and World Bank is currently dominated by the US and Europe. The control by developed countries, especially the US, over finance is becoming increasingly incongruous with their economic ability. Newly emerging countries represented by the BRICS countries are rapidly rising in the field of real economy, but receive unfair financial treatment, which is one of the causes for unreasonable international relations.

It is more difficult for emerging countries to gain financial power than market share. Financial power is, in essence, political power, and developed countries like the US will stick to it and won't easily agree to share it. 

The new emerging countries should bear in mind that the US' special financial power is shaped by a number of factors including national strength and military experience.

Challenging the US' financial power requires a certain price. Pledging more funds to the IMF could be considered an equal price paid by all relevant countries. But China should also have the courage to do highly risky things such as RMB internationalization.

Expanding real economy and trade scale is the basis on which China's financial influence can be increased. It should also be supported by the country's political credibility and military power. Financial power is probably China's weakest link compared with its competitiveness in other sectors. 

Other emerging countries are also confronted with a similar dilemma that China is facing. Whether the BRICS countries can strengthen cooperation is critical to whether they can gain more financial power.

If BRICS countries can set up a BRICS bank, as has been proposed, and carry out international financing through the bank, it will put pressure on the West and even force them to make compromises.

But there is still a long way to go for BRICS countries to strengthen cooperation. China now needs both ambition and patience. The US has taken advantage of the unreasonable current financial order. With the expansion of China's economy, if China lacks financial discourse power, it will face greater risks. Therefore, China should work with other countries to seek financial equality.

China is a newcomer in the global financial competition. It lacks experience in how to use its trade surplus and lacks the financial tools to hedge risks.

The world economy cannot be continuously controlled by a few countries. It is the central theme of global democracy. No matter how hard the change comes about, we need to push it to make it happen.

Posted in: Editorial

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