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G20 a tripolar economic game of chess

By Zhang Ming (China Daily)
Updated: 2009-03-30 07:53

At the G20 summit in London this week, the world's leading powers will face off on core political and economic interests in the midst of a global financial crisis. The United States, the Eurozone countries and emerging economies will be negotiating such issues as sharing bailout costs, stimulating economic growth and revamping the international monetary system. That will help accelerate the formation of a tripolar international monetary system, but like the previous summit in Washington, we may not see substantive results.

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For emerging economies, such as China, there are two tasks at the top of their agenda for the meeting. One is to urge developed countries to give up protectionist policies, which, together with shrinking demand have hampered the export dependent growth of these emerging economies. The other is to demand that the US back up the value of its dollar assets.

Since the subprime crisis broke out in the US, Washington has made every attempt to bail out its economy. The White House has launched a series of bailout measures, but those expansionary fiscal and monetary policies are not enough to stabilize the country's financial market and economy.

The US also has to think about where the bailout money will come from. One tack the US has taken is to lobby other countries to continue financing the US - by buying more Treasuries - without shaking its core position in the global monetary system.

The Obama administration has been trying to do this since January and will continue to promote the bonds at the London summit. Although issuing more Treasury bonds will have less of a negative impact than printing more greenbacks, the US government has to persuade its major creditors, including China, Japan, Britain and Middle East countries, to buy more of its Treasuries.

As a result, emerging economies that hold large foreign exchange reserves, such as China, are concerned about the ability of the US to back up the value of its dollar assets. They are demanding that as a precondition for purchasing more of the bonds the US take inflation into consideration.

Countries in the Eurozone regard the ongoing world financial crisis as an opportunity to challenge the US core position in the international monetary system. France and Germany in particular, are looking to strengthen the position of the euro and weaken the dominance of the dollar in reshaping the international monetary system.

The author is a researcher with the Chinese Academy of Social Sciences