Global financial governance needs more stability, resilience

Global financial governance desperately needs to continue to overcome hurdles to become more stable and resilient, as it has now entered a period of risk exposures.

The global financial crisis emerging in 2008 has exposed the flaws of the existing global financial system and highlighted the necessity for a better one.

In recent years, Britain's exit from the European Union and Greece's debt defaults have stressed the urgency for pushing structural reforms of global financial governance to conduct any financial rescue caused by political and economic uncertainties.

Improving the international financial architecture has long been pursued at major international economic cooperation forums and platforms, including the Group of 20 (G20), which has significantly advanced the process.

Yet challenges and barriers still remain, as the U.S. dollar has long been the dominating currency in the global monetary system while the world looks for other options.

One of the options, as China advocates, is the Special Drawing Right (SDR), a supplementary foreign reserve asset defined and maintained by the International Monetary Fund (IMF), the value of which is based on a basket of key international currencies.

The SDR currency basket is more stable than a single currency. It can alleviate the impact of currency fluctuations, and statistics based on the SDR are more objective.

The SDR bonds boomed in the 1970s and 1980s. The bonds should also serve as diverse assets which can reduce the risk of foreign exchange rate fluctuations.

On Aug. 22, China's central bank announced it would allow a division of the World Bank to issue SDR-denominated bonds in China's interbank bond market, taking the latest step to expand the use of SDR bonds.

Building a stable and resilient international financial architecture is key to fostering financial stability. G20 finance ministers and central bank governors have restored the function of a working mechanism, called the International Financial Architecture Working Group, to promote a smooth functioning and orderly evolution of the international monetary system.

They have also pledged to support a quota and governance reform plan proposed by the IMF in 2010 and back a strong, quota-based and adequately resourced IMF.

With the 2010 IMF reform plan taking effect in January, the representativeness of emerging markets and developing countries has been significantly enhanced, paying the way for the IMF's next structural reforms.

To enhance global financial governance, countries also need to work toward improving the sovereign debt rescheduling mechanism, strengthening monitoring of capital flows and risks, and safeguarding the security of the global financial network with the IMF at the core.

China has long been advocating the improvement of the world financial architecture, especially after its currency RMB was included in the SDR basket in November 2015.

As the host of the G20 summit to be held on Sept. 4-5 in China's Hangzhou City, China will both present and promote its ideas to help reshape global financial governance.

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Source : XINHUA