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The conferences and related papers will focus on certain questions lacking attention or progress, including:
Governance structures
Crises and systemic risk
Exchange rate system
Integrating China in the interational monetary system
Future role of the International Monetary Fund (IMF)
Governance structures
How can disparities in economic weight and financial contributions be reconciled with the need for more inclusive decision-making in international institutions and arrangements (for example, in IMF voting)? Should the G-7 be expanded, perhaps through the inclusion of China?
More broadly, how can emerging economies be best represented in the international financial architecture, recognizing that improving their development prospects is a principal aim of global financial governance? Will the G-20 serve as a basis, perhaps in combination with regional forms of governance?
Furthermore, how can the institutions of global financial architecture - intergovernmental, Basle, regional and IFI-based processes - be more coherent, and the overlapping processes better co-ordinated, while taking account of national diversity? Are major changes needed in the mission and structure of the IMF?
Crises and systemic risk
After two years of debate to explore the possibility of a sovereign debt restructuring mechanism, the international community has decided at this stage to pursue a more market-driven approach through the use of collective action clauses in bond documentation and possibly a code of good conduct clarifying the principles and responsibilities of issuers and creditors in the context of a debt restructuring. Nevertheless, the debate is not over, and the Argentina restructuring is likely to have significant consequences.
What is the appropriate public-private balance in burden sharing in both crisis prevention and resolution? Who are the appropriate private sector participants? What claims to representation should be required of them? How can their accountability be assured?
What are the implications for the role of the International Monetary Fund, whose lending has become increasingly concentrated on a few emerging market members that received exceptional access to fund resources? Can greater clarity be brought to the Fund's responsibility to provide liquidity? Does the Argentina package suggest trends that might ultimately impair the revolving nature of IMF lending? Are there other aspects of the expansion of private capital flows that are potential sources of systemic risk and deserve closer scrutiny?
To what extent should national authorities be prepared to relinquish 'sovereign' control in matters of monetary and financial governance in exchange for the benefits of greater stability? How can the financial architecture be rendered more compatible with the conflicting interests generated by national democratic processes? How best to balance issues of accountability and legitimacy at the national and global level, with the need to build an architecture that combines conditionality with sensitivity?
Exchange rate system
The Asian and Argentine crises as well as the Dubai G-7 communique have strengthened a movement within the international financial community to emphasize flexibility in exchange rate systems. Yet, many important countries continue to effectively peg their rates. What is an appropriate path toward flexibility for emerging market economies? How can the system as a whole improve its contribution to the adjustment of major, sustained balance of payment imbalances? Now that the Euro has become more established and Japan's economy may finally be returning to health, are we likely to see countries diversify their reserves away from dollar assets? What would be the implications of a world of multiple reserve currencies?
Integrating China in the international monetary system
China’s exchange rate policy has emerged as a major global topic. During recent months, the governments of Japan, Korea, and the US have called upon China to revalue the country's currency. China is perceived as a threat because it has been enjoying export growth of 35% during recent months. As a result of booming foreign direct investment and the return of flight capital, China also has foreign exchange reserves of US$ 355 billion or the second highest in the world after Japan. The US is now able to finance its large fiscal deficits and current account deficits because of currency intervention by Asian central banks, especially Japan and China. The central banks of China and Hong Kong have purchased nearly US$ 100 billion of US government securities during the past eighteen months. The East Asian central banks now have 70% of the world's foreign exchange reserves compared to only 30% in 1990 and 21% in 1970. They keep their US$ 1.7 trillion of reserves 80-90% invested in US government securities.
The success of China and India in exporting goods and services respectively may rest in part on weak currencies. Some Asian currencies are fixed, some have a managed float, but all of them are accumulating vast amounts of official reserves in US dollars. China has the potential to be a source of strength as well as vulnerability in reinforcing the precarious stability that has now returned to the international financial system, and in forwarding the move toward a genuinely global system of open finance. How it manages its multiple transformations will be of enormous importance for the international monetary system.
Future role of the International Monetary Fund
Many of the discussions on a new international financial architecture that were spawned by the Mexican crisis and continued through the Argentinian crisis raised questions about the future role of the IMF. Four major areas merit attention: 1) the scope of Fund activities, 2) surveillance, 3) lending, and 4) governance. The IMF is still needed to help countries resolve payments problems in an internationally responsible way, to address liquidity crises, and to act as a crisis manager. Does this mean that crisis prevention should be at the core of the IMF's work? Should it deepen its efforts to collect and disseminate information to investors and markets, further covering indicators of financial vulnerability as well as macroeconomic fundamentals? To what extent should its resources be expanded to enable it to provide liquidity, and under what circumstances should the Fund provide backstop financing for countries? How should its governance change to reflect the international monetary system in 2004 as opposed to the one that existed in 1944?
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