As G20 seeks solutions, consider reforming yuan
- Source: Global Times
- [01:08 September 21 2009]
- Comments
Illustration: Liu Rui
By Guo Kai
G20 summits always draw angry protestors, and the coming event in Pittsburgh has attracted even more than usual.
Pittsburgh and the US Secret Service have designated two public protest zones, located within sight of the attendees, but they hardly need to see the signs and hear the shouts to know how unhappy many people feel about the damage wrecked by the financial sector last year. Their discussions reflect that.
French President Nicolas Sarkozy has proposed limiting salaries and bonuses in the financial industry, increasing reserve funds, and setting up funds to compensate for the
risk of fi nancial trading.
British Prime Minister Gordon Brown, meanwhile, suggested linking bonuses to long-term performance rather than short-term gains.
Following a discussion on antitrust laws, German Chancellor Angela Merkel proposed limiting the size of the financial sector in order to prevent it "blackmailing" the public.
These proposals are all aimed at muting the risks within the fi nancial system, but without a multinational consensus, no single country can achieve this.
Given the "global policy" of compensationsin financial industry, we are more in favor of Brown's proposal. It is very difficult to control salaries and bonuses.However, if firms give bonuses for long-term performance, rather than just short-term gains, companies will begin to look toward a stable future instead of just short-term balance sheets. The wild ups and downs and short-term thinking that contributed to the financial crisis could therefore be avoided.Sarkozy's proposals might seem too idealistic, or even just be aimed at his domestic audience in France, but his challenging attitude at the last summit was refreshing.
Without his threat to quit, the summit couldn't have achieved united actions to fi ght against tax shelters and havens. Without leaders like Sarkozy the ability to act collectively would be greatly diminished, and summit talks would just become talking shops for elder statesmen.
Brown also proposed constraints on those countries with huge balance of payments surpluses and defi cits. There is no doubt that he was referring to the US and China However,only if most leaders agree that the current status of these two countries endangers global fi nancial stability and development can this become an official topic at the summit.
Brown and his think tank need to come up with better solutions if his proposal is to be taken seriously, otherwise his statement will cause no more than a ripple at the event.
In an international finance and diplomacy battlefi eld covered with the dispersing smoke of the crisis, we have come to understand that the establishment of an international
reserve currency would be futile without establishing a fully convertible Chinese yuan, and one set at a market-orientated exchange rate. We must change the current pegging and "quasisubordination" of the yuan to the US dollar.
After the financial crisis, we are now entering into a time of confl ict within the international monetary system.
Before the system is rebalanced and becomes stable again, we should quickly find a clear position for the yuan and study reforms in currency liberalization in other countries.
We should also ask for aid from international financial organizations and other countries in order to complete the reform of the yuan.
The author is a reporter with the 21st Century Business Herald
