Author: Stephen Grenville, Lowy Institute

Only a few years ago, the European common-currency arrangements were held up as a possible model for Asia.

With the euro under serious threat, we do not hear much about this now, but the current mess in Europe could well contain a number of lessons for Asia. Read more…

Author: Huw McKay, Westpac and ANU

The Australian economy presents a conundrum for both policymakers and outside observers.

Despite a spectacular effort in evading the worst of the 2008/09 downturn and an impressive recovery trajectory in the labour market through 2010, a striking undercurrent of pessimism has emerged. Read more…

Author: Ronald McKinnon, Stanford University

In reforming the international monetary system, exchange rates usually get primary attention front and center — such as in numerous meetings of the Group of 20. Indeed, at the G20 meeting in November 2010, President Obama attacked China for not appreciating its currency.

But China’s monetary policy has been oriented toward keeping the renminbi-dollar rate stable since 1994, which served China well as a nominal anchor for its domestic price level and to smooth exchange relationships with its smaller neighbours. Read more…

Author: Iana Dreyer, Paris

The mainstream view is that China can still go on growing at 8 per cent and above in the next five to ten years.

This is increasingly questionable. China’s economy is too bubbly and will soon slow down. Read more…

Authors: Karl P. Sauvant and Ken Davies, Columbia University

So far, the discussion of revaluation of the yuan has been almost exclusively about the impact on China’s trade balance.

But it is at least as important to ask what effect it may have on the country’s inward foreign direct investment (IFDI), which plays such a crucial role in China’s economic development, and its outward FDI (OFDI), which is receiving increased attention worldwide. Read more…

Author: Peter Drysdale, ANU

China’s emergence as the second largest economy in the world, and on some reckoning an economy that is already nudging America for the top spot, inevitably raises questions about how this remarkable and rapid shift in world power will affect the global economic order as we know it and what role China can now be expected to, and will, play in running the world economy.

At the end of the Second World War, the United States bequeathed the GATT, IMF and World Bank-based international system and assumed leadership in establishing the rules and norms in running the global economy. Read more…

Author: Peter Drysdale, ANU

American authorities have been baying for months about flexing up the renminbi (RMB — the Chinese currency) to help turn around China’s current account surpluses and reduce America’s deficits. Whether a sharp appreciation in the rate of exchange between the RMB and the US dollar should be relied on as the main instrument for effecting that change smoothly is a much debated question.

Appreciation of the RMB is certainly one crucial part of the solution, but there are also more fundamental structural problems that need to be dealt with to cut back China’s net international savings and achieve the reverse in the United States. Read more…

Author: Suman Bery, NCAER

On November 3, shortly before US President Barack Obama’s arrival in India, the Federal Open Market Committee (FOMC) of the US Federal Reserve announced that it intended to undertake a fresh round of purchases of longer-term treasury securities in an aggregate amount of US$600 billion until the second quarter of 2011, at a pace of approximately US$75 billion per month.

Even though Fed Chairman Ben Bernanke had done his best to ‘trail’ (that is, anticipate) this decision, starting with a speech at Jackson Hole, Wyoming in late August, the formal announcement of this move (so called QE2, denoting the second round of quantitative easing) has unleashed a firestorm of criticism both within the US and internationally. Read more…

Author: Yiping Huang, Peking University and ANU

Today, the National Statistics Bureau released October’s batch of economic data. Almost all indicators for economic activity, including fixed asset investment, industrial production and even retail sales, slowed in October (as measured by year-on-year growth rates). The whole country’s attention, however, was firmly fixed on inflation data. CPI was up by 4.4 per cent year-on-year in October, compared with 3.6 per cent in September and the consensus forecast of 4.0 per cent.

This was the highest level reached in 25 months. Food prices, in particular, increased by more than 10 per cent. Read more…

Author: Suman Bery, NCAER

The East Asian countries responded with coherence and vigour to the weaknesses in their financial systems revealed by the crisis in 1997-98. This raises two issues. First, how important does that earlier agenda remain? Second, is it is reasonable to expect comparable alignment among the Asian members of the G20, particularly on the inter- related issues of global imbalances and the reform of the international monetary system?

Among the ASEAN+3 group of countries (the ASEAN 10, Japan, Korea and China), there is a well-established narrative on the 1997-98 financial crisis. Read more…

Author: Takatoshi Ito, Graduate School of Economics, University of Tokyo

The G20 includes more Asian countries than any other global grouping, and it is expected to be a good forum for Asian countries to press their agenda.

The G20 Summit was created out of the chaos of the global financial crisis. After Lehman Brothers  collapsed in September 2008, global financial markets went into a tailspin. Securities markets were frozen as buyers disappeared. Read more…

Author: Barry Eichengreen, Berkeley

As the G20 assembles in Seoul, it has a full plate. There is the need for continued progress on strengthening financial regulation – on getting countries to harmonise their still divergent approaches to regulatory reform and to push the Basel III reforms of capital adequacy through to their logical conclusion. There is the continuing inadequacy of international arrangements to wind up insolvent cross-border financial institutions. There is the need to coordinate monetary and budgetary policies so as to reconcile fiscal consolidation in some countries with the need for continuing policy support from others for what remains a less-than-certain recovery. There is the need for agreement on the global financial safety net, the pet project of the Korean hosts. There is the need to push ahead with quota reform at the IMF and to agree on reducing the number of European seats on the fund’s executive board.

No doubt the G20’s communiqué will touch on all these areas. But there is also the elephant in the room, namely China’s exchange rate. Read more…

Authors: Shiro Armstrong and Peter Drysdale, ANU

The elevation of the G20 to a leaders’ summit represents a change to the international system of an order that can be compared with the establishment of the great postwar international institutions. The G20 is now the premier forum for global economic governance following its elevation to leaders’ level meetings after the global financial crisis. The United States has led a smooth transition in the locus of power from the G7/8 to the G20.

The membership of the G20 is recognition of the importance of Asia in the global system. Now Asia has this global platform can it deliver on its global responsibilities? Read more…

Author: Shiro Armstrong, ANU

It is now less than a month until the G20 Summit in Seoul. The agenda is firming up but unlike in the Toronto Summit, which was less ambitious and the coverage of which focused on protests in Toronto, Seoul is set to be a real test of what the G20 can deliver.

US Treasury Secretary, Tim Geithner, has delayed publishing a US Treasury report on Chinese currency manipulation until after the Summit. This intensifies the focus on the exchange rate issue at the G20. Read more…

Author: Ulrich Volz, DIE

Twenty-five years after the initial agreement, a new Plaza Accord has been proposed and currency intervention is again the major issue. While the revaluation of one major currency, the Chinese yuan, has reinvigorated the debate, global imbalances and currency relations remain global problems. Rows over the recent intervention by the Bank of Japan to halt appreciation of the yen have highlighted once more the need for addressing these issues in a cooperative and multilateral framework. Unilateral and uncoordinated intervention, where countries effectively seek to lower the value of their own currency at the expense of other countries’ export competitiveness, clearly carry the danger of triggering a round of beggar-thy-neighbour policies and a protectionist backlash.

However, the prospects for a new Plaza Accord are dim: China will not be willing to give in to pressure from the US and other advanced or emerging economies that form the G20. Read more…