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EVENTS

31 March 2009 

G20 summit: fight against the dollar or the national interest of Russia?

On April, 2 the G20 summit opens in London. The leaders of 20 major world economies convene for the second time to coordinate their efforts to fight the world financial crisis.

Russia perhaps feels its negative socio-economic impacts most acutely of all the participants of the meeting, and as no other country is interested in such coordination. The state of our economy is highly dependent on external conditions, and the resumption of economic growth cannot be expected until the world demand recovers.

Therefore, the Russian strategy for the summit should be evident: support for national and international crisis measures aimed at early restoration of the world economy and the recovery of foreign demand for our products.

But instead we see a very different approach. Russia.s proposals focus on criticism of U.S. politics and support of the Chinese initiative to revise the status of the dollar as global reserve currency.

Despite the seeming validity of the arguments and the now traditional appeal to anti-American sentiments, this approach is not only illogical, but also contradicts the national interests of Russia.

It is impossible to designate a particular currency to be reserve by fiat, or deprive it of that status. The reserve status of the dollar has not been imposed by force; on the contrary it crystallized in the course of competitive economic process after the rejection of the gold standard, and has been seriously tested since more than once.

And today, the demand for the dollar is still high, not because U.S. currency is used as reserve, exactly the opposite - the dollar serves as a reserve currency, because the whole world believes in the sustainable operation of the largest economy and wants to buy American goods and services. While this is true, all the talk about switching to an alternative standard is, at least, irrelevant.

Behavior of China gives the best answer to the question how real is the fear associated with the reliability of the dollar; lately this country has been steadily increasing the absolute amount and proportion of this currency and U.S. Treasury bonds in its reserves.

The United States and China in the current financial and economic conditions are related as Siamese twins, and dollar serves as the link. It is not a coincidence that the US Secretary of State Hillary Clinton during a recent visit to the Middle Kingdom was forced to emphasize the special role of China in financing the growing U.S. public debt. It is clear that by initiating a discussion on the global reserve currency, and providing it with international support, China sought to strengthen its position in the coming serious bilateral dialogue with the United States on the coordination of economic policies.

And what we seek out of this issue? Instead of acceding to the coalitions, reflecting the other's national interests, and advancing phantom ideas like establishment of international financial center in Moscow Russia should focus on building its own agenda, which has a real prospect and will be positively received by the partners. An important focus of such an agenda would be to support international initiatives and taking on the obligation to reject protectionism in trade and investment, actually threatening international trade and hence the prospects for recovery of global economy and foreign demand for Russian goods (note that Russia is the only G20 country not in the WTO). Otherwise, having already discredited itself as a full-fledged member of the Group of Eight, our country risks of moving to the margins of G20.

Article by Mikhail Kasyanov (published at newsru.com)

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