NEW YORK – In the run-up to this September’s G20 summit in Hangzhou, China, there has been much talk about strengthening global macroeconomic cooperation and reforming the international monetary system. While this is far from the first time these topics have come up – in 2011, for example, France pushed for monetary reform, but was waylaid by the eurozone crisis – the time may be ripe for genuine progress.
Today’s global economy is plagued by uncertainty. Inconsistent data have lately raised questions about the strength of the United States’ economy. When it comes to Japan, the data are even more erratic. The European Union faces not only a still-weak recovery, but also the possibility of losing the United Kingdom as a member.
The emerging world, meanwhile, is experiencing a sharp economic slowdown. China, in particular, poses a significant risk, with many fearing that its downturn will be more severe than initially anticipated. This has spurred many to move their capital out of the country, generating strong downward pressure on the renminbi.
This highlights another source of uncertainty today: exchange rates. From the euro’s decline in 2014-2015 to the US dollar’s decline after the Federal Reserve signaled a postponement of its rate increases to the British pound’s recent drop, spurred by uncertainty surrounding the recent referendum on EU membership, major currencies have been all over the map in recent years. Some have even mooted suspicions of competitive devaluation.