The world is more secure than before crisis

France to continue exploring Korea’s ‘financial safety net’ initiative

By Kim Jae-kyoung

Over the weekend, Group of 20 (G20) member nations struck a deal to avert a global trade war and reform the International Monetary Fund (IMF). The move is expected to pave the way for the world to find workable solutions for the global economy in the post-crisis world.

Despite the agreements, many still doubt whether the G20 process is a step in the right direction, asking themselves two key questions: Are we safer than before the global financial crisis (thanks to the G20 accords)? And is a currency war looming or is it imaginary?

These two important questions are difficult to answer. The G20 released a joint statement made by finance ministers and central bank governors but the carefully wording was not clear enough to assure the public that the world is moving toward a more secure environment.

Two central bank governors from the current and next G20 hosts ― Bank of Korea Governor Kim Choong-soo and Bank of France Governor Christian Noyer ― both of whom played key roles in leading the G20 to reach sensible agreements, are providing clearer answers.

In a joint interview with The Korea Times held Saturday at the Hilton Hotel in Gyeongju on the sidelines of the G20 Finance Ministers and Central Bank Governors Meeting, the pair said in unison that the world has taken the important lesson from the latest crisis ― the G20 should work together to reduce global imbalances and ensure a safer environment.

“We are already more secure and we intend to be even more secure in the years to come because we are thinking of ways to address the problems. Among many things we have done, one is (the recognition) that global imbalances matter,” Noyer said. “The fact that you let unsustainable global imbalances develop means that you create huge capital flows. Capital flows, depending on the circumstances, may contribute to distort the formation of prices in financial markets.”

“Second, we learned that the financial system as a whole was not strong enough, and that we needed to reinforce the strength of the financial system. There are many aspects. One part is the solidity of the bank and reinforcing capital basis, and reinforcing liquidity rules,” he added.

Kim echoed Noyer’s view, noting that one of the most important lessons from the current crisis was that political leaders have become aware of the importance of policy cooperation.

“In the past, political leaders hardly ever cooperated with each other because they all based their decisions upon domestic issues. But now they have begun to understand that unless they cooperate with each other on the imbalance of the macroeconomic environment, they cannot achieve the policy objectives they want,” Kim said.

“(Through the G20 process,) we have found a way to reduce risk. Therefore, there are likely to be less uncertainties and less risk and that means that the future world will be more secure,” he added.

No currency war?

The two governors also shared the view that the ‘currency war’ is only imaginary, indicating that some noise created by the G20 is the process of discussion to find middle ground on global rebalancing.

“I don’t recall anybody using the term currency war inside the meeting. But the term we used at the meeting was ‘external sustainability.’ This is a new term. So I think people began thinking positively about how to attain a balance and equilibrium in the world economy. They all know the problems of the global imbalance and therefore how to achieve a balance in the global economy,” Kim said.

“That was the key issue that everybody paid attention to. Therefore people began finding ways to cooperate with each other. They all understood that unless they cooperate with each other, probably everybody will end up with worse results, and they all wanted to avoid such a situation,” he added.

Noyer concurred.

“I think one has to understand that there are differences in the speed of growth of different countries in general. Advanced economies are recovering from the financial and economic crisis more slowly with a need for structural adjustment, and emerging market economies are recovering more rapidly with a higher rate of growth. And this normally needs different types of monetary policies and a different type of fiscal policy,” he said.

“That may at some point create imbalances in the market. But that does not mean that there is any sense of a war. I never felt any sense of that. What I felt was the sincere will of everybody to find the best possible solution in terms of cooperation,” he added.

France taking over Korea’s initiative

The French bank’s governor said there has been much progress on major issues under Korea’s term and France will work hard to further develop those efforts, a sign that the G20 will continue to remain as the world’s policy forum in the future.

“The French presidency of the G20 intends to continue all the work that has been done by the current presidency, and as I said there have been remarkable achievements in many fields,” Noyer said.

Kim replied, “As a Korean initiative, Korea proposed establishing a global financial safety net. I think it was worth being included, but there are a couple of issues which are not resolved yet (in the communiqué). Namely, stigma free issues, or how to avoid moral hazard,” Kim said.

“I am glad to hear that the next presidency of France will continue to explore these issues further and I hope they will come up with a more complete version of this global financial safety net,” he added.