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Op-ed
The G-20 and "Chermany"
Arvind Subramanian
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China's policy change to introduce greater exchange rate flexibility shows the G-20 worked by allowing the renminbi to be converted from a bilateral US-China matter to a multilateral one. Multilateralizing the currency issue had the positive effect of forcing China to confront international public opinion and of allowing China to portray the currency move as responding to the international community, not bowing to US pressure.
The question now is whether the G-20 can induce similar cooperation with Germany, the other large surplus country in the world economy. Germany has just received a boost of competitiveness with the decline of the euro, making it an accidental mercantilist. Germany's response has been to embrace fiscal consolidation at a time when it should be expanding demand for the sake of global rebalancing and providing some growth for its southern European neighbors. While it is easy to rail against mercantilism, which involves doing well at someone else's expense, fiscal consolidation has the aura of moral correctness and virtue. Because of that, Germany-bashing is unlikely to yield the success that international pressure on China has.
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Paper
G-20 Protection in the Wake of the Great Recession
[pdf]
Gary Clyde Hufbauer,
Jacob Funk Kirkegaard, and Woan Foong Wong
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The G-20 needs to build on its record of coordinating global crisis management success by living up to its commitment to promote global trade and reject protectionism. In shifting to a postcrisis agenda, the authors recommend that G-20 leaders take the following initiatives: conclude the WTO Doha development agenda, appoint G-20 "Trade Wisemen" to establish an "I know it when I see it" doctrine against trade protectionism, expedite the WTO's dispute settlement mechanism, and establish a regular G-20 trade ministers meeting. The G-20 is uniquely situated to handle the issues that present themselves as the world emerges from the Great Recession, but renewed policy action to limit protectionism must come from all countries. Addressing high unemployment by resorting to protectionist measures will cost jobs if trading partners respond in kind. For example, the United States could actually lose up to 200,000 jobs as foreign countries emulate the US Buy American legislation and shut out US firms from their own government procurement.
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>> See also US Protectionist Impulses in the Wake of the Great Recession [pdf]
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Policy Brief 10-18
Dealing with Volatile Capital Flows
[pdf]
Olivier Jeanne
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The tools and mechanisms with which emerging-market countries insure themselves against volatile capital flows are in a state of flux. Most emerging-market countries had accumulated an unprecedented level of international reserves before the 2008 global financial crisis. The crisis itself led to a large increase in International Monetary Fund (IMF) resources and the introduction of a new lending facility, the Flexible Credit Line. Meanwhile, some progress was made toward transforming the Chiang Mai Initiative into an Asian Monetary Fund, and the Greek debt crisis even prompted calls for the creation of a European Monetary Fund. How have emerging-market countries dealt with capital flow volatility in the current crisis? What is the appropriate level of reserves for emerging-market countries? How can international crisis-lending and liquidity-provision arrangements be improved? What role can financial regulation and capital controls play in dealing with volatile capital flows? Olivier Jeanne discusses these and other important questions that are useful to keep in mind when thinking about the reform of international liquidity provision for emerging-market countries to deal with volatile capital flows. Jeanne concludes that the IMF and the international community should make more efforts to establish normative rules for the appropriate level of prudential reserves in emerging-market and developing countries and actively develop with its members a code of good practice for prudential capital controls.
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Policy Brief 10-17
The Big U-Turn: Japan Threatens to Reverse Postal Reforms
[pdf]
Gary Clyde Hufbauer and
Julia Muir
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Earlier this year, a majority of the Lower House of the National Diet of Japan approved legislation that would reverse a decade's worth of effort to fully privatize key subsidiaries of Japan Post Holdings Co. Ltd. Besides postal services, the state-run postal system offers banking and insurance services, through Japan Post Bank (JPB) and Japan Post Insurance (JPI), respectively. These are the financial engines of Japan Post and were the units slated for privatization. Both subsidiaries have long received favorable government treatment, tilting the playing field against private banks and insurance firms, whether foreign or domestic. The government of Japan is in clear violation of its commitments under the World Trade Organization (WTO), and if the Upper House approves the legislation, Japan will reverse the efforts made by the United States and the European Union, as well as domestic private banks and insurance firms, to establish a level playing field. What's more, Japan risks having a formal WTO dispute brought against it.
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PIIE Noted in the News and on the Web
NPR
Chinese Bank Plans Huge Public Offering
The Agricultural Bank of China is planning what could be the largest initial public offering in history. NPR's Robert Siegel speaks with Nicholas Lardy, PIIE, and Andy Xie, a Shanghai-based economist, about concerns about possible bad loans.
Preview of Our Next Issue
Working Paper
The Design and Effects of Monetary Policy in Sub-Saharan African Countries
Mohsin S. Khan
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