Wednesday, March 18, 2009

14 days to G20: no space for a common global financial regulator

As the world — well about 85 per cent of it, if you add up the collective GDPs of the 20 countries that comprise G20, which meets on April 2 in London to take coordinated action against the ongoing credit crisis — gives regulation of financial products a new global rethink, Dani Rodrik of Harvard throws in a warning: a common global regulator won’t work.
In a well argued piece in The Economist, Rodrik says that the logic of global financial regulation is flawed. “The world economy will be far more stable and prosperous with a thin veneer of international cooperation superimposed on strong national regulations than with attempts to construct a bold regulatory and supervisory framework.”
The issue is tricky and views are strongly divided. On the one hand is the sovereign right of countries to make rules and implement them within their domains. Accepting a global regulator will be seen to be a needless meddling in domestic affairs.
Howsoever democratic the global regulator be in terms of representation, staffing or execution, and howsoever equal that representation (I presume it won’t create the mess like the UN has through the formation of false institutions like the Security Council), a compromised sovereignty will constantly loom in the background, providing political fodder to opposition parties in all G20 countries, except China that doesn’t have one.
All countries enjoy the benefits of global finance — as long as the money flows into the countries (though not too far back, some like India were scared of those inflows) — as the money comes in and sets the wheels of industry and households in motion through their holy intercourse with markets. And that’s the way it should be.

Blog post on Cutting the Edge

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