The Great Debate

– Dr. Gerard Lyons is chief economist and group head of global research at Standard Chartered Bank. The views expressed are his own. –

From three films to three natural events

Last year at the IMF, I spoke about the global outlook in the context of three films. The first was ‘No Country for Old Men’, as the catchphrase of that film – “You can’t stop what’s coming” – described the imminent global recession. The second was ‘Apollo 13’, in which the head of mission control, Gene Krantz, is told, “This is NASA’s worst moment”. He replies that if the three astronauts are brought back to earth safely, it will be NASA’s best moment – and is proven right. Likewise, if the problems facing the financial sector were addressed properly and it emerged from the crisis in good shape, this would be an Apollo 13 moment for the financial industry.

The third film was ‘Singing in the Rain’, which aptly described the optimistic outlook for emerging markets at the time. But as I pointed out, while Gene Kelly did sing in the rain, he was completely soaked. And so it proved for emerging economies in the wake of last year’s crisis. While the outlook for many emerging regions looks good, they are not immune to setbacks in the West.

This year – given the general consensus, the risk of further shocks, and the fact that many countries have already used their policy tools to the full – I used three analogies related to natural events, things beyond our control: a flash of lightning, a tidal wave, and a volcanic eruption.

The U.S. recovery may be a flash of lightning

We are past the worst, and a recovery is here, but it is vital to focus on absolute levels. The world economy is just under $61 trillion in size; the U.S. economy is $14.3 trillion. If the West is not booming, emerging economies cannot boom. They can grow, but this requires self-sustained, domestically-driven demand. Although the next six months could be strong for the world economy as policy easing and inventory rebuilding feed through, beyond that, there are challenges.

– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

It looks bad for the dollar, but looks can be deceiving.

Its sharp decline in the last week has pushed the euro to its highest level in a year and reignited fears that there’s only one place for the dollar to go, and that’s down.

Rhetoric from influential investors like Warren Buffett as well as big foreign buyers of U.S. debt like China and Russia has fed that sense of doom.

- John Kemp is a Reuters columnist. The views expressed are his own. -

Reports that China has asked for a discussion about reserve currencies at next week's expanded Group of Eight summit in Italy has added to confusion about whether the country wants to dethrone the dollar from its status as the world's sole reserve currency. But the very fact the issue has been pushed onto the agenda suggests that a fundamental shift is underway.

Given the U.S. government's enormous borrowing requirements over the next decade to cover the bank bailout, fiscal stimulus and deficits in Social Security and Medicare, the dollar's reserve status depends on emerging markets' continued willingness to accumulate U.S. liabilities rather than switching to other stores of value, such as the euro or the IMF's Special Drawing Right (SDR).

As the largest buyer of U.S. Treasury securities, China can break the dollar's reserve currency status any time it wants. But it would risk large losses on the stock of U.S. debt that it has bought already. The resulting unstable stability is the foreign exchange version of the Cold War stalemate based on "mutually assured destruction".

Jaspal Bindra is Chief Executive, Asia, for Standard Chartered Bank. The views expressed are his own.

Asia has come of age. When leaders from the Group of 20 nations converge in London, Asia’s rising powers – China, India,  Korea and Indonesia – will be sitting at the global high table to decide on ways to reshape the world’s financial and economic order.

There are expectations that the meeting will include concrete steps to revive economic growth, a boost in funding for the International Monetary Fund, and an understanding on the new financial architecture to restore trust in the financial system.

- Johannes Linn is a Senior Fellow and the Executive Director of the Wolfensohn Center for Development at the Brookings Institution. The views expressed are his own. —

One of the tasks for the G20 Summit in London is the reform of the IMF and the World Bank, key global institutions to help address the current crisis and to prevent the occurrence of future crises. Reform of the IMF is more urgent both in the short and medium term while reform of the World Bank, although equally important, is less pressing.

The G20 faces a few immediate priorities related to the IMF:  First, G20 leaders should agree to triple IMF resources from the current level of $250 billion to $750 billion to help meet the financing needs of developing countries. This is critical because the World Bank has estimated that these countries may face a shortfall of up to $700 billion in 2009 alone.  Second, G20 leaders should request that the IMF monitor and report transparently on the commitments and implementation of G20 national stimulus plans and efforts to repair their banking sectors. Third, G20 leaders should commit to a far-reaching reform of the IMF by 2010.

– James Saft is a Reuters columnist. The opinions expressed are his own –

The dollar is, and will remain, the U.S.’s currency and its own and everyone else’s problem.

The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon.

– Stephany Griffith-Jones is executive director of the Initiative for Policy Dialogue at Columbia University. The views expressed are her own. –

There are many important challenges facing G20 leaders when they meet in London in early April.

The first is to coordinate sufficiently large fiscal and other measures to ensure that world aggregate demand recovers, and a major recession is avoided.

–Paul Taylor is a Reuters columnist, the views expressed are his own–

Anyone who expected the major emerging economies to write fat checks in exchange for being invited to the first G20 leaders’ summit on rescuing the world economy will have been disappointed.

But that should only have surprised the naive.

Despite intensive lobbying by British Prime Minister Gordon Brown of Saudi Arabia and China, the rising powers were never likely to make a cash down-payment to the International Monetary Fund before getting more seats and votes at the top table.