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Gordon Brown's plan for Chinese to put world economy back in balance | Business | The Guardian

Gordon Brown is to set out proposals at the G20 this week aimed at boosting Chinese consumer demand and ending the global economy's reliance on the American shopper.

The plan is one of the centrepieces of Brown's four-day economic and diplomatic blitz in the US at the UN general assembly in New York and the G20 in Pittsburgh.

Economists have long warned of the dangers of imbalances in the global economy - specifically huge trade surpluses and currency reserves built up by exporters such as China, and big deficits in the US and other economies.

Brown, Barack Obama and the IMF have been looking jointly at ways in which new global systems can be put in place to encourage the Chinese to stop accumulating large reserves, built up to inoculate themselves from volatile capital flows.

"The 15-year period when the world economy can rely on the American consumer to drag the world out of recession is over," said one British official. "We need a new motor for growth."

Brown's aides are hoping the world stage can still provide the right personal backdrop for a desperately needed triumph at the Labour conference next week.

Brown is this year's chairman of the G20, although the G20 meeting in Pittsburgh on Thursday and Friday is being chaired by Obama.

Brown's officials have been looking at an insurance pool for the G20 largest economies that would reduce incentives for build-ups of reserves. Under one model the insurance pool would function like a reserve fund, offering participants a short-term credit line they could call upon during a crisis.

Brown's ideas have been developed with Obama and the IMF, and it is hoped the insurance scheme would be a way of encouraging China to reduce its trade surplus and revalue its currency.

Obama said this weekend: "We can't go back to the era where the Chinese or the Germans are selling everything to us, we're taking out a bunch of credit card debt or home equity loans, but we're not selling anything to them."

He said making sure there was a more balanced economy in future was a key aim of the G20 meeting, just as much as co-ordinating strategies to exit from the current round of fiscal stimulus.

G20 officials have also been discussing an annual G20-led peer review process by which they would hold each other accountable for implementing economic policies that led to more balanced growth.

But Brown's officials argue that if no insurance funds are available, countries have every incentive to build up current account trade surpluses so as to create large currency reserves, leading them to lock up their wealth in unproductive low-return liquid government bonds. China owns $2.1tn (£1.3tn) in foreign currency reserves, much of which is believed to be in US dollars.

Keynes International Clearing Union approach was that both those with positive (the Gesellian approach) and negative "Bancor" balances should pay a charge, which would implicitly have been into such a pool.

This proposal seems not a million miles away from the Guarantee Society and credit clearing ideas I've been working on for about four years.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Sep 21st, 2009 at 05:10:46 PM EST
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