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July 31, 2014 11:56 pm
From Mr George Magnus.
Sir, David Pilling’s insightful writing mostly hits the nail on the head for me. But in “The Brics bank is a glimpse of the future” (July 31) I think he’s missed the point.
He does say at length, and rightly, that the bank has been born of frustration. We can all agree that the failure by the Republican majority in the US House of Representatives and by European governments to fast-track large-scale governance reform to accommodate the largest emerging countries is worse than a missed opportunity. It reeks of complacency and small-mindedness in a world that is crying out for the opposite. However, in saying that the Brics bank should be welcomed and encapsulates the future, I worry that Mr Pilling has succumbed to hyperbole, for two reasons.
First, the world does not need and will not benefit from Balkanised global finance. Domestic banking competition is all very well in a properly regulated and supervised system, but in global finance strong rules and high levels of co-ordination are essential to manage financial flows between creditors and debtors, and the richest and poorest nations. If regional banking and reserve pooling is the future, instability and chaos won’t be far away.
Second, the Brics bank is an irrelevant response to the dubious criticism that emerging countries suffer from the selfishness of the US Federal Reserve, for example the tapering policy. Global finance is best served by the Fed doing the “right” thing, not by accommodating economic policy errors and weaknesses in emerging countries, for which they bear responsibility themselves.
In any event, the US dollar is the world’s reserve currency. Period. The Brics bank will pool reserves in US dollars and access will not be unrestricted. It will fund itself and lend to supplicants in US dollars also presumably with conditions. Hey presto, we have a Bretton Woods institution in all but name, but which is a political creation, and as Mr Pilling concludes, no panacea. There’s nothing wrong with the Bretton Woods construct that governance reform can’t fix.
George Magnus, London N6, UK
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