Friday, November 14, 2008

A new Bretton Woods type of meeting?

Tomorrow’s G20 meeting is garnering expectations of convening a new Bretton Woods type of meeting. Given the economic mess the world is currently mired in, it is not surprising that many people believe that a new international framework and new international rules need to be put in place, if globalization is expected to continue into the foreseeable future.

Capitalism has an ugly side, and with globalization, this ugly side has been given free rein. Capital chases after the highest return, and globalization has given it the means to arbitrage national regulations. In the process, it sometimes ended up trampling on local economies or specific sectors of the world economy.

Below are some simple ideas leading to possible avenues of discussion, if such a meeting were to be convened. Some are meant simply to address the current mess, some to improve the current global framework, but all these were tackled in some way in previous posts here.

1. Prevent the further threat of global deflation that could come from China, or from any one single country.
2. Current economic indices, matrices, and indicators are no longer useful and appropriate, and need to be tweaked.
3. US dollar should be complemented by alternative world currencies.
4. Minimize emerging economies' susceptibility to mass starvation from a prolonged slowdown by assisting them in extending agriculture-based stimuli.
5. Manage growth of regional blocs from potentially undermining global competition.
6. Synchronize global deposit guarantees so as not to create deposit arbitrage or bankrupt less prosperous nations
7. US housing problem should be addressed better.
8. Standardize shortselling regulation globally.
9. Bank capital requirements regulation should be re-thought to become countercyclical and not procyclical.
10. Banking oversight should be strengthened in areas, such as banking fees.
11. Capital mobility, if continued, should be accompanied by labour mobility, or globalization will not result in the development of comparative advantage in any location.
12. Fiscal obligation of nations should be clarified.
13. Functions of a now needed global central bank should be discussed, and a possible proposal for it or a close alternative reached.
14. Market should be restructured to realign the rating agencies’ interest with those of investors.
15. Bubble hot money flows should be curtailed and regulated, and more incentives given to long-term investment.
16. Re-think the implementation of mark-to-market accounting to make it less procylical.
17. Find ways to manage spread of risk through the global financial system.
18. New focus of economic development should be on local demand creation.
19. Currency manipulation to gain unfair trade advantage should be ceased.
20. Sustainability should always be central to government policy.

Update: Financial Times came up with a similar article. HT Naked Capitalism

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