Powerhouse economies call for more say on world stage

Published on Thursday 14 April 2011 15:54

THE BRICS group of emerging-market powers increased the pressure yesterday for a revamped global monetary system that relies less on the dollar and for a bigger say in international financial institutions.

The leaders of Brazil, Russia, India, China and South Africa also called for stronger regulation of commodity derivatives to contain volatile food and energy prices, which they said posed new risks for the recovery of the world economy.

Meeting on the southern Chinese island of Hainan, they said the recent financial crisis had exposed the inadequacies of the current monetary order, which has the dollar at its heart.

What was needed, they said in a statement, was "a broad-based international reserve currency system providing stability and certainty" - thinly veiled criticism of what the group sees as Washington's neglect of its global monetary responsibilities.

The group is worried that America's large trade and budget deficits will eventually debase the dollar. Members also begrudge the privileges that come with being the lead reserve currency. "The world economy is undergoing profound and complex changes," Chinese president Hu Jintao said.

"The era demands the BRICS countries strengthen dialogue and co-operation."

The call by the BRICS for a new monetary order is not new. But, coming before a meeting in Washington of finance ministers from the Group of Seven industrial nations, the traditional power brokers of the world economy, yesterday's communiqu showed the growing confidence of emerging markets.

Burdened by heavy debt, the US, the Eurozone and Japan are struggling to shake off the lingering effects of the 2008 global financial crisis. Rich countries will grow 2.4 per cent this year and 2.6 per cent in 2012, the International Monetary fund forecast earlier this week. By contrast it is forecasting emerging and developing countries will grow 6.5 per cent in both years.

"The quality and the durability of the global economic recovery process depends to a great measure on how the BRICS economies perform," Indian premier Manmohan Singh said.

The leaders reviewed the global role of the Special Drawing Right, the IMF's accounting unit and reserve asset, which some believe could grow into a partial substitute for the dollar.

But they sidestepped the issue of whether the Chinese yuan should join the SDR, saying only that they welcomed discussion of the composition of the SDR's basket of currencies.

A member-country official said the group was split on whether China's currency, which cannot be freely exchanged except, met the criteria for being part of the SDR.

"We still have no unanimity on the inclusion of the Chinese currency in the SDR as of now," said the official.The SDR now comprises the dollar, euro, Japanese yen and sterling.

Emerging economies have already won more say in the way the IMF is run, but the BRICS leaders said they were still under-represented.

"We … agreed on the need for the reform of international financial institutions in order to promote a just economic order," South African president Jacob Zuma said.

Swings in commodity prices are also a prime area of concern for the BRICS. China hopes the group will be able to agree on a common stance on commodity price fluctuations at the G20 summit in the French city of Cannes in November.