Is world ready for a new int'l financial system?

Special Report: Hu Attends

Financial Summit, APEC Meeting, Visits Four

Nations

Related: Statement from G-20 Summit

by Li Bo

BEIJING, Nov. 16 (Chinese media) -- Ever since a credit

crunch that started with the U.S. subprime mortgage crisis spread to other parts

of the world, there have been mounting calls for reforming the current

international financial system from all over the world.

As Henry C.K. Liu, a Chinese American commentator on

economics, put it in an open letter to the G20 summit in Washington last week:

"The winter of 2008-2009 will prove to be the winter of global economic

discontent..."

The letter, published by Asia Times on Nov. 8,

blasted neo-liberal economists who "fooled themselves into thinking that false

prosperity built on debt could be sustainable with monetary indulgence."

It advocates a new international financial

architecture based on an updated 21st century version of the Keynes Plan

originally proposed at Bretton Woods in 1944.

"This new international financial architecture will

aim to create (1) a new global monetary regime that operates without currency

hegemony, (2) global trade relationships that support rather than retard

domestic development, and (3) a global economic environment that promotes

incentives for each nation to promote full employment and rising wages for its

labor force," said the letter signed jointly by American macroeconomist Paul

Davidson and dozens of other leading world economists.

The proposal presents a rosy blueprint, but on the

ground, the world has not gathered enough dynamics to rebuild a new financial

system.

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U.S. DEFENDS SELF INTERESTS

Though other nations blamed the financial storm on

the failure of free-market capitalism in the United States, U.S. President

George W. Bush stood firm against calling into question the very fundamentals of

"democratic capitalism," and against excessive regulation.

It is "essential we preserve the foundation of

democratic capitalism," Bush said while meeting with French President Nicolas

Sarkozy and European Commission President Jose Manuel Barroso last month.

Bush reiterated the U.S. position at the G20 summit,

saying one objective of the leaders' meeting was to reaffirm "our conviction

that free market principles offer the surest path to lasting prosperity."

But he admitted that both the International Monetary

Fund and the World Bank, the two main international financial institutions

created in 1944 in Bretton Woods, should be modernized.

The joint statement of the summit did not mention the

creation of a global financial market enforcer as demanded by some European and

emerging countries but opposed by the United States.

As for calls to end the U.S. dollar's hegemony as the

sole world currency, U.S. close ally Japan voiced support for the

dollar-centered currency system at the summit.

"There is a voice questioning if it's stable for the U.S. dollar of the world's largest debt country to continue to be a key currency... But our prime minister stressed (at the summit) that no currency but the dollar can be used as a key currency," a Japanese official told reporters.

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