The G-20 Initiative for a new international financial architecture

Table of Contents

1 INTRODUCTION

2 PROBLEM DEFINITION

3 OBJECTIVES

4 METHODOLOGY

5 THE G-20 INITIATIVE FOR A NEW INTERNATIONAL FINANCIAL ARCHITECTURE
5.1 THE G-20
5.2 LATEST G-20 MEETINGS AND INITIATIVES
5.3 G-20 LEADERS SUMMIT IN LONDON APRIL 2ND 2009
5.3.1 The Leaders Statement
5.3.2 Declaration on Strengthening the Financial System
5.4 THE IMPLEMENTATION OF G-20 INITIATIVES
5.4.1 A White Paper for a Financial Regulatory Reform
5.4.2 Reform Initiatives in the European Union
5.4.3 Financial Supervision in the UK
5.4.4 Reforms Initiatives in Germany
5.4.5 Other Initiatives around the Globe

6 CONCLUSIONS

ITM CHECKLIST

BIBLIOGRAPHY

List of Figures

Figure 1 The currency basket of SDR

List of Tables

Table 1 Member countries of the G-20

1 Introduction

The finance minsters of the seven largest economies plus Russia (G-8) have declared that if everyone in business and finance was just a jolly good sort, we could have avoided the sort of meltdown that led to the world financial crisis and global recession (Lecce 2009). This statement summarizes quite well the key learning from the current financial crisis. However more specific actions are required to prevent similar in the future.

2 Problem Definition

The G-20 committed to a broad set of actions to be taken to overcome the current financial crisis and to prevent those in future. This assignment focuses on the initiatives of the G-20 for a new financial architecture in the belief that those are valid prevention strategies derived from the recognition of root causes, resulting effects and dynamics involved.

3 Objectives

This assignment reviews the different initiatives of the G-20 for a new international financial architecture and their implementation by different countries. It provides also some aspects of criticism to the different reforms, actions and initiatives as not all of them appear appropriate to address the root causes of the financial crisis in the best way.

4 Methodology

Because of the actuality of the topic the information provided in this assignment is mainly based on Internet sources, newspapers and other media like radio and TV. The assignment starts with a review of the G-20 process and the results of the latest meetings. In a second step the main initiatives are reviewed and sorted. The implementation of proposed reforms is then studied and discussed for different countries and regions. The assignment can not target a complete description of all the different initiatives, as the learning about the crisis is a very dynamic revolving process with multiple international actors. Many of the initiatives are still underway and seek for completion in the next couple of months. However, the G-20 provided in result of the summits of Washington and London a good framework of initiatives to start with.

5 The G-20 Initiative for a new international financial architecture

5.1 The G-20

The Group of Twenty (G-20) finance ministers and central bank governors was established in 1999 as an informal forum that promotes open and constructive discussion between industrial and emergingmarket countries on key issues in the global economy. The G-20 claims to support growth and development across the globe by contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions (cf. G-20, 2009b).

The G-20 enlists the finance ministers and central bank governors of 19 countries (see Table 1) and the European Union, represented by the rotating Council presidency and the European Central Bank.

Table 1 Member countries of the G-20 (G-20, 2009b)

Abbildung in dieser Leseprobe nicht enthalten

South Korea Turkey United Kingdom United States of European

America Union

The member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population, what gives the G- 20 a high degree of legitimacy and influence over the management of the global economy and financial system (cf. G-20, 2009b).

Achievements of the G-20 can be seen in the adoption of internationally recognized standards in areas such as the transparency of fiscal policy, exchange of information on tax matters and the fight against money laundering and the financing of terrorism. The reform of the international financial architecture is a continuous target of the G-20 by aiming to develop a common view among the members on issues related to further development of the global economic and financial system. Consensus is the underlying principle of G-20. There are no formal votes or resolutions.

Unlike international institutions such as the Organization for Economic Cooperation and Development (OECD), IMF or World Bank, the G-20 has no permanent staff of its own (G-20 2009b). The G-20 chair rotates between the members each year, in 2009 it is with the United Kingdom and 2010 with South Korea. A revolving three-member management team of past (Brazil in 2008), present and future chairs ensure continuity in the G-20's work across host years.

The G-20 cooperates closely with various other major international organizations by participation of their presidents, directors and chairs in the G-20 meetings, what ensures that the G-20 process is integrated in the activities of the Bretton Woods Institutions like IMF and World Bank. Although participation in the G-20 meetings is reserved for members, the outcome of the meetings is immediately posted on a dedicated website by the current chairing country (http://www.g20.org). The G-20 finance ministers and central bank governors normally meet once a year. The next regular meeting will be hold in November 2009.

5.2 Latest G-20 Meetings and Initiatives

In the light of the financial crisis a G-20 meeting was held in São Paulo, Brazil on 8-9 November 2008¹. At this meeting the Ministers and Governors discussed the financial market crisis and its implications for the world economy. They stressed their resolve to work together to overcome the financial turmoil and to deepen cooperation to improve the regulations, supervision and the overall functioning of the world’s financial markets, to take forward the work of establishing closer macroeconomic cooperation to restore growth in a broad range of countries, while avoiding negative spillovers (G-20 2008a).

Just a few days later the leaders of the G-20 countries meet in Washington on November 15th 2008. The G-20 Finance Ministers were tasked by the Washington summit to take forward work in the following five areas, the so called Washington Action Plan (G-20 2008b):

- Strengthening transparency and accountability
- Enhancing sound regulation
- Promoting integrity in financial markets
- Reinforcing international cooperation
- Reforming the international financial institutions

As there was some overlap between the five areas and to advance this work for the Leaders Summit on 2 April 2009 in London, the G-20 had set up four working groups (G-20 2008b):

Working Group 1² - Enhancing sound regulation and strengthening transparency

Working Group 2³ - Reinforcing international co-operation and promoting integrity in financial markets

Working Group 3⁴ - Reforming the IMF

Working Group 4⁵ - The World Bank and other multilateral development banks (MDBs)

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¹ Around four weeks earlier the US Government forced the top nine US banks to participate in a program to stabilize the US banking system by selling preferred stocks of their own to the US Government, what in fact can be seen as an act of nationalization.

² This group will monitor implementation of actions already identified and make further recommendations to strengthen international standards in the areas of accounting and disclosure, prudential oversight and risk management. It will also develop policy recommendations to dampen cyclical forces in the financial system.

³ This working group will monitor actions and develop proposals to enhance international co-operation in the regulation and oversight of international institutions and financial markets, strengthen the management and resolution of cross-border financial crises, protect the global financial system from illicit activities and non-cooperative jurisdictions, strengthen collaboration between international bodies, and monitor expansion of their membership.

⁴ This working group will look at the role, governance and resource requirements of the IMF. It will review the appropriateness of the IMFs lending instruments and the effectiveness of its surveillance function, and will consider the sufficiency of its resources, and its general arrangements and accountability.

⁵ This group will consider the mandates, governance, resourcing and policy instruments of the MDBs in light of the needs of their members and the pressures resulting from the impact of the downturn on developing countries.