A new international financial order needed

(China Daily)
Updated: 2008-11-11 07:44

As nations throughout the world take initiatives to tackle the international financial tsunami, people also wake up and begin to think over the cause of the economic crisis, hoping to find a way to improve and reform the current impotent international financial system.

Fortunately, a common consensus seems to have been reached on this issue in the world community that a highly efficient supervisory mechanism should be put in place. Excessive financial liberalization and lack of a workable and innovative supervisory mechanism in this field would unavoidably bring about huge risks and unleash economic and social problems.

Due to its inherent fragility, the financial industry needs a preventive supervisory system to avoid market malfunctioning. At the national level, an effective, all-encompassing financial supervision system will not only help boost its economic development but will also constitute the first arc of defense for the construction of the wider international financial system.

With correlation and interaction ever growing in the international financial sector, all economies should strengthen mutual coordination to improve their financial supervision and management systems. But a tightened supervision is not meant to pursue financial stability through abandoning financial openness and innovation. All countries should still strive for financial innovation to serve their economy while enforcing a viable supervision mechanism to ensure financial security.

At the international level, the pressing problem currently lies in the fact that international financial bodies cannot deal with the changing global financial market with obsolete management tools and models. The world should no longer continue to run the current economy with the means wielded in the 20th century, as French President Nicolas Sarkozy put it. Thus, how to strengthen management, especially over the issuance of major international currencies and over large-size banks, remains a demanding task for the whole international community.

So far the international community has reached some common grounds on the reform of the existing international financial system. It is expected that the much-needed mutual trust among countries will gradually be restored as market rules and monitoring and management means become increasingly forceful.

The prevailing global financial system was founded mainly by developed countries and thus serves their fundamental interests. The old international economic order also turned to be a tool used by a minority of developed powers to run international production, trading and financial rules to their advantage.

Since the end of the Cold War and the subsequent emergence of some developing countries, the international economic configuration has experienced enormous changes, rocking the long-standing, West-dominated economic landscape. In particular, as the economic clout of developing nations grew after the 1990s, especially after the start of the new century, calls have been on the rise among the masses of developed countries for the establishment of a new international financial order.

How to restructure the existing international financial system is yet to be jointly discussed by members of the world community. But one thing is for sure - the new system to be built should take into full consideration the interests of the overwhelming majority of developing nations. The situation that marginalized developing nations should be abandoned.

The international community should first restructure the International Monetary Fund, World Bank and World Trade Organization, the pillars of the present international financial arrangement, and expand the voice of developing nations in order to advance toward a just, tolerant and orderly international financial system.

However, we should not expect developed nations to volunteer to give up their long-established dominant status in the international financial system.

After the outbreak of the latest international financial crisis, some Western scholars even blame China's low interest rate - as a result of excessive bank savings - for the crisis. However, the real culprit is unrestrained financial innovation and the Western lifestyle of consuming beyond their means.

On the surface, such ridiculous contention aims to defend financial speculators and ill-performing financial supervisors. But its essence is to safeguard the vested interests of Western countries in the existing international financial structure. The fabrication of the illogical uproar, which is opposed by some conscientious Western economists, gives all the indications that in the future reform of the international financial system, the wrangling between developing and developed nations will not wane.

The ongoing crisis broke out in the context of deepening economic globalization. Its outbreak serves as a reminder that economic globalization is a double-edged sword that does not automatically ensure the healthy development of the global economy. A new mentality and mode is badly needed to tackle the changed international situations to forestall the otherwise destructive impacts upon the world.

As countries across the world take more and more action to rescue their diving stock markets, by injecting liquidity into banks and lowering interest rates, investor confidence in the market has been restored to some degree. However, whether these measures can solve deep-rooted problems still remains to be seen.

A global crisis needs global efforts. At the recently concluded 7th Asia-Europe Meeting (ASEM), leaders of the two continents appealed to the international community to strengthen coordination and cooperation and take resolute, responsible and timely measures to restore market confidence and stabilize the global financial market.

On the eve of the global summit on the financial crisis due to be held in Washington D.C. this weekend, it is to be hoped the G-20 talks would help solve the world's current and future problems in the financial sector in an efficient manner, and contribute to a steady financial market and a sustained global economy on an equal, mutually beneficial and win-win basis.

The article was published in People's Daily on Nov 6

(China Daily 11/11/2008 page8)