Fixing the Global Financial System - America's Way on Trial
War is too important to be left to generals, France's Georges Clemenceau concluded during the organized butchery of World War I. Today's global economic collapse is convincing European and Asian nations that management of the dollar is too important to be left to the Americans.
This is the enormous cat that China's leaders let out of the bag last week by suggesting a new international reserve currency to replace the dollar as the global medium of exchange. China's trial balloon, which would give greater currency-issuing power to the International Monetary Fund, is a subtle but significant challenge to six decades of American leadership and management of the world's financial system.
Zhou Xiaochuan, China's central bank governor, got in his licks on the bank's Web site. He called for gradually "removing the inherent deficiencies caused by using credit-based national currencies" (i.e., the dollar) to settle international debts and accumulate savings. His essay showed Beijing's growing concern that President Obama's massive spending programs will decimate the $2 trillion China holds in foreign reserves, primarily dollars.
But Zhou was reflecting misgivings that also surface in calls by France and other nations for a "Bretton Woods II" international economic agreement. His paper was strategically timed to get this week's Group of 20 summit in London to focus on the responsibility that the dollar -- and thus the United States -- should bear for the deep recession and turmoil afflicting world markets.
The Ugly American is no longer an uncaring bureaucrat or soldier posted to Southeast Asia, but a greedy financier on Wall Street selling unsecured securities to gullible foreigners and Americans alike.
The G-20 gathering is the first important international test of Obama's considerable leadership and communication skills. He will need all those talents to prevent the summit from becoming a mock trial of America's recent alleged financial crimes and selfishness, and of "Anglo-American capitalism" itself.
It is important to understand the case for the prosecution, even -- perhaps especially -- for those who do not accept it. Americans are much less sensitive than are foreigners to the preeminent role of the dollar in global power politics as well as commerce. As Charles de Gaulle argued in the 1960s (to the outrage of Lyndon Johnson), the original Bretton Woods system enabled Washington to ignore the international monetary discipline it enforced on the currencies of others. The United States could finance budget deficits at home -- and its wars abroad -- on the backs of foreign nations.
The French have never abandoned that analysis, even if it waxed and waned as global fortunes shifted. President Nicolas Sarkozy renewed that approach last year by calling for greater international supervision of financial markets and the global exchange-rate system. This month, the European Union endorsed the Sarkozy line by agreeing to emphasize regulation at the summit -- even though Obama wanted the G-20 to focus on new stimulus spending by others to match the United States and Britain.
The two camps have in fact patched together an agreement for the summit to highlight the need for more stimulus by some and more financial regulation by all, French Prime Minister François Fillon indicated during a visit to Washington's Carnegie Endowment last week. But the "global New Deal" compromise will actually rise or fall on details still to be settled.
The United States is fine with more national regulation -- see the latest Wall Street oversight plan offered by the administration's Inspector Gadget, Treasury Secretary Tim Geithner. But Washington balks at surrendering real power over its economic life to international bodies it does not control.
So do other nations. France and Britain talk eloquently about the need to make the IMF and other international financial bodies more democratic. Yet they don't offer to give up their vetoes in the U.N. Security Council to jump-start global institutional reform. Russia champions self-determination until it comes to countries that do not submit to the Kremlin's plans for a Euro-Asian pipeline and energy monopoly. Egypt, Libya and other Arab chauvinist regimes mouth off about double standards and then flock to praise and protect Omar Hassan al-Bashir, Sudan's president and indicted war criminal, and cover his back in Darfur.
The G-20 leaders must avoid turning the London summit into a high-level hunt for scapegoats. This crisis is a collective failure of the world's established and rising powers. The United States should acknowledge any responsibility that its excesses and its beloved greenback bear for this mess. But other nations that demand new power must also show they are ready to exercise it responsibly before a meaningful reform of international institutions can begin.