G20

IBS AHEMEDABAD

Project on G 20 Nishant Bali 3/6/2009

6 April 2009

Introduction:The G-20 in an informal group of world leaders that come together annually to discuss global economic stability and strengthen global financial cooperation. The G-20 was created after the international financial crises led by developing countries in the 1990's. The G-20 is a group of finance ministers and central bank governors from 20 economies: 19 of the world's largest national economies, plus the European Union (EU). Collectively, the G-20 economies comprise 85% of global gross national product, 80% of world trade (including EU intra-trade) and 2/3 of the world population. The G-20 is a forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization.

Members of G-20:In 2009, there are 20 members of the G-20. These include the finance ministers and central bank governors of 19 countries:

Argentina Australia Brazil Canada China France Germany India Indonesia Italy Japan

Mexico Russia Saudi Arabia South Africa South Korea Turkey United kingdom United States

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In addition to these 20 members, the following forums and institutions, as represented by their respective chief executive officers, participate in meetings of the G-20 International monetary fund World Bank International Monetary and Financial Committee Development Committee of the IMF and World Bank

Locations of G-20 meetings Year

Location

1999

Berlin, Germany

2000

Montreal, Canada

2001

Ottawa, Canada

2002

Delhi, India

2003

Morelia, Mexico

2004

Berlin, Germany

2005

Beijing, China

2006

Melbourne, Australia

2007

Cape Town, South Africa

2008

Sao Paulo, Brazil

2009

London, UK

Sources: www.wikipedia.com

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Protest before the G20 meeting (28 March, 2009) On 28 March, 2009 there was mass protest against the G20. Some 10,000 protestors have gathered in London to stage a series of demonstrations before and during the April 2 G-20 summit to be attended by world leaders. Why the protest? There better future and job safety. Create an economy, where fair distribution of wealth is there. Decent jobs for all UK citizens. And, low carbon futures (make the planet green).

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2009 G-20 London Summit Highlights Each year the G-20 writes a report on their findings, known as the Communiqué. The April 2nd, 2009 talking points found in the Communiqué are as:-

• • • • •

Strengthen financial regulation. Restore confidence in the economy, produce growth and jobs. Promote global trade and investment while rejecting protectionism. Build and inclusive, green and sustainable recovery. Repair the financial system.

Steps taken by G-20 members:G-20 members agreed on the immense step to recover the despair economy by agreeing on $1 trillion and to restore credit, growth and jobs. G-20 members agreed on raising $500 billion IMF resources to $750 billion, the fund can make available to countries worst hit by the global crisis. The group also agreed to authorize the Multilateral Development Bank (MDB) to lend an additional $100 billion, as well as increase support of trade finance to $250 billion, and use additional resources from gold sales to finance the poorest countries. Limits on hedge funds, executive pay, credit-rating companies and risk-taking by banks. China and Russia proposed replacin g the dollar as the world ’s main res erv e cu rrency wi th a proposed to change the US dollar as the world currency and instead of that use the SDR (special drawing right).

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China proposed replacing the dollar as the world’s main reserve currency?

China’s central bank governor, Zhou Xiaochuan, offered a bold proposal to overhaul the global monetary system and replace the Greenback (dollar) with the IMF SDR (Special Drawing Right). What are the reasons? The outbreak of the [credit] crisis and its spillover to the entire world reflected the … systemic risks in the existing international monetary system. Whole world needs the international reserve currency to secure global financial stability and facilitate world economy growth. When the use of currency (greenback) as the exchange rate which itself is in the grip or the parent of such crisis, would definitely not create any stability. The other su gges ted w as that the chan ge wou ld not on ly eliminate the risks associ ated wi th paper “fi at” c u rrenci es , su ch as the d ollar and pou nd – which are back ed on ly by the c redi t of the issu ing cou ntry , rather than by g old – bu t wou ld mak e i t p ossible to manage global liqu idity and imbalanc es more effec tiv ely .

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What is a Special Drawing Right (SDR) “The SDR (Special Drawing Right) is an artificial "basket" currency used by the IMF (International Monetary Fund) for internal accounting purposes”. The SDR is also used by some countries as a peg for their own currency, and is used as an international reserve asset. At present, the currencies in the basket are, by weight, the United States dollar, the Euro, the Japanese yen, and the Pound sterling. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. What is the value of an SDR? January 1981-December 1986 ISO Currency Weight Value GUSD US Dollar 42% $ 0.540 DEM

German Mark

19%

JPY

Japanese Yen

13%

DM 0.460 ¥ 34.0

FRF

French Franc

13%

F 0.740

GBP

British Pound

13%

£ 0.0710

January 1986-December 1990 ISO Currency Weight Value GUSD US Dollar 42% $ 0.540 DEM

German Mark

19%

JPY

Japanese Yen

15%

DM 0.460 ¥ 34.0

FRF

French Franc

12%

F 0.740

GBP

British Pound

12%

£ 0.0710

6 April 2009 January 1991-December 1995 ISO Currency Weight Value GUSD US Dollar 40% $ 0.540 DEM

German Mark

21%

JPY

Japanese Yen

17%

DM 0.460 ¥ 34.0

FRF

French Franc

11%

F 0.740

GBP

British Pound

11%

£ 0.0710

January 1996-December 1998 ISO Currency Weight Value GUSD US Dollar 39% $ 0.540 DEM

German Mark

21%

JPY

Japanese Yen

18%

DM 0.460 ¥ 34.0

FRF

French Franc

11%

F 0.740

GBP

British Pound

11%

£ 0.0710

January 1999-December 2000 ISO Currency Weight Value GUSD US Dollar 39% $ 0.540 DEM

German Mark

32%

JPY

Japanese Yen

18%

DM 0.460 ¥ 34.0

GBP

British Pound

11%

£ 0.0710

January 2001-December 2005 ISO Currency Weight Value GUSD US Dollar 44% $ 0.540 DEM

German Mark

31%

JPY

Japanese Yen

14%

DM 0.460 ¥ 34.0

GBP

British Pound

11%

£ 0.0710

6 April 2009

January 2006-December 2010 ISO Currency Weight Value GUSD US Dollar 44% $ 0.540 DEM

German Mark

34%

JPY

Japanese Yen

11%

DM 0.460 ¥ 34.0

GBP

British Pound

11%

£ 0.0710

Sources: Www.Newsdaily.Com

SDR valuation Initially, the value of the SDR was defined in terms of one US-$, which in turn was defined in terms of an ounce EXAMPLE: of gold: $35/oz until. Since July 1974 the SDR has been defined in terms of a basket of currencies. This basket consisted initially of 16 currencies and was reduced to 5 in 1981, and now it reduced to 4. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market. When the London market is closed, noon rates in the New York market are used The basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the world's trading and financial systems. How to calculate the value of SDR To calculate the value of SDR, first summation of all the value of the four currencies and convert it in US dollar on the basis of exchange rate which quoted at noon in the London market. And by doing this we get the value of SDR.