Bridges Weekly Trade News Digest • Volume 13 • Number 33 • 30th September 2009
World Bank Chief Calls for Shift in Multilateral System
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Robert Zoellick, president of the World Bank, warned against over-confidence in the US dollar and called for a new approach to managing global trade in a speech in Washington on Monday. The world is in the midst of an upheaval as momentous as the collapse of the Soviet Union and the French Revolution, he said in a speech at the School for Advanced International Studies at John Hopkins University. The massive economic shift has been brewing for 20 years, he said.
Power relations and international cooperation will change during this new upheaval, he added. While some assume that China and India will emerge as new world superpowers and that the United States will see its influence diminish, Zoellick argued that 2010 will bring a lot of uncertainty for China.
Zoellick’s more controversial statements were about the future of the US dollar. It would be a mistake for the US to trust that the dollar will continue to be the largest reserve currency, he argued. Other currencies, such as the euro and the Chinese renmimbi, have shown their resilience in the financial crisis, and will be on the rise. But he maintained that the US dollar would still be an important currency but that its ultimate strength will hinge on decisions made in Washington.
“Will the United States resolve its debt problems without a resort to inflation? Can America establish long-term discipline over spending and its budget deficit? Is the country restoring a healthy financial sector capacity for innovation, liquidity, and returns, without producing the same risk of big bubbles and institutional breakdown?” Zoellick put forth. “The dollar’s value will also depend on the extent to which we see the return of a dynamic, innovative private sector economy.”
Zoellick also commented on the state of the current and future trading system. He questioned the Bretton Woods trading system’s ability to satisfy global demand, explaining that while leaders have generally avoided widespread protectionism since the 1930s, there is more of a temptation to protect during times of crisis. Thanks to the slow-moving Doha Round of negotiations, whose agenda is now nearly a decade old, it is not being given enough focus when facing new challenges. Once a Doha Round deal has been struck, he said, the world needs to move on to a new agenda.
The new global trading system that Zoellick envisions would maintain liberalisation, encourage open regionalism counter crisis-driven protectionism, expand trade in services, and help the poorest countries seize trade opportunities.
“The Bretton Woods system was forged by 44 countries at a time that power was concentrated in a small number of states,” he said. “The great waves of decolonisation were just stirring; the few developing countries were seen as objects, not subjects, of history. That world is long past. The new realities of political economy demand a different system.”
ICTSD reporting; “World Bank head sees dollar’s role diminishing,” NEW YORK TIMES, 28 September 2009.
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