Reminder: In the most fundamental sense, WAIFC members encourage the development of savings for capital formation, channeled from individuals and institutions and reworked into productive investment by banks, insurers, and the capital markets – while maintaining liquidity in the system and institutional stability. The challenge could not be more complex.
The point of Group of 30
Let us return to that word fundamental. Financial centers are central to social development and prosperity, and they require a complex mix of ingredients to work. They also need planning, and for that this month’s WAIFC opinion asks readers to step back from the papers on their desk and their inboxes for a broader perspective.
The Group of Thirty (G30) consultative body on international economic and financial affairs was founded in 1983.[1] Now as then, the purpose was to draw out some of the best thinking of those in market economies in positions of high responsibility in government, business, and academia on the hard questions they were addressing. It aims to deepen understanding of global economic and financial issues, and to explore the international repercussions of decisions taken in the public and private sectors. The Group is characterized by the extensive experience of its members and open-minded, forward thinking. Although the meetings are largely private, by invitation only, to be effective the tradition of the institution also involves extensive sharing of thought pieces.
The Group of Thirty was founded in 1978 at the initiative of the Rockefeller Foundation, which also provided initial funding for the body. Its first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund. The G30's current Chairman is Tharman Shanmugaratnam. Its current Chairman of the Board of Trustees is Jacob Frenkel, and Paul Volcker is Chairman Emeritus. Their biographical highlights are found on the website.
Selections from the G30 current agenda
Let us see what the questions were, and how they were posed, just during April 2022.
- Can the World Afford Russia-Style Sanctions on China? Kenneth Rogoff, Professor of Economics at Harvard University, argues that economic sanctions imposed on China, such as those used against Russia, would have less of an effect on the U.S and European GDP than previously assumed. Recent sanctions on Russia have been impactful due to its smaller and less diversified economy. He states that a recent study found decoupling global value chains would only cost the U.S. 2% of its GDP. However, if deglobalization efforts do overreach, it “could easily be disastrous, particularly in undermining innovation and dynamism.”
Research into supply chain vulnerabilities and possibilities.
- A Time of Uncertainty John C. Williams, President of the Federal Reserve Bank of New York, discusses his outlook on inflation, economics, and the Russia-Ukraine war. Low unemployment, solid wage growth, and abundant job openings have suggested a steady economic recovery in the U.S. Although inflation continues to increase, he states that long-term inflationary trajectories remain “well-anchored” and that he expects “inflation to be around 4 percent, then decline to about 2½ percent in 2023, before returning close to our 2 percent longerrun goal in 2024.”
Dollar inflation forecasting, which is critical to the value of assets.
- Russian default would stack risks onto a stressed world Carmen M. Reinhart, Senior Vice-President and Chief Economist of the World Bank Group, examines the financial stress affecting developing countries and emerging markets due to the Covid-19 pandemic, and how a Russian default on loans would further hinder their recovery. Spiking food prices and the Russian-Ukraine war have exacerbated an emerging food crisis, which is disproportionately affecting developing countries experiencing higher inflation rates. The disproportionate macroeconomic impacts hitting developing countries and emerging markets.
- A Global Strategy to Manage the Long-Term Risks of Covid-19 Gita Gopinath, First Deputy Managing Director at the International Monetary Fund, joins Ruchir Agarwal, Jeremy Farrar, Richard Hatchett, and Peter Sands, in an IMF working paper, to analyze the obstacles that hindered economic recovery and ways governments can avoid long-term risks of the Covid-19 pandemic. A lack of financing, in-country delivery barriers, unpredictable supplies and inefficiencies in regulatory processes, and unbalanced response in combating Covid-19 have limited the global economic recovery. The authors call for a unified approach to reducing global risks, including increased donor financing, a faster reaction time and a unified approach to pandemics, and stronger collaborations and systems between countries. Covid-19 and its economic effects in year three of the pandemic.
- Climate Policy is Macro Policy Mark Carney, Vice-Chair and Head of Transition Investing at https://www.brookfield.com/, argues climate change is "macro critical", stating that temperature impacts alone could lead to the equivalent of a decade of no economic growth. Property destruction and migration due to increased extreme weather events and rising sea levels have already put strains on the global economy. If not mitigated through policy-making and private investment in the netzero transition, climate change will likely put upward pressure on inflation and cause severe supply shocks throughout the world. The costs of going too slowly in transitioning away from the carbon-based economy.
- CBDCs for the People Agustín Carstens, General Manager of the Bank for International Settlements and H.M. Queen Máxima of the Netherlands propose that Central Bank Digital Currencies (CBDCs) could improve financial inclusion if developed and implemented correctly. Digital currencies may help overcome barriers faced by people who don’t have access to traditional banking. Although cybersecurity is an increasing concern for digitization, the authors argue data protections can be woven into the digital currency structure to mitigate cybersecurity threats. Financial inclusion could be enhanced through central bank digital currencies.
- This Inflation Is Demand-Driven and Persistent Jason Furman, Professor of the Practice of Economic Policy at Harvard University, states that persisting high inflation is not caused by supply-chain issues, but rather increased demand pressures which have led economies to exceed their production capabilities, resulting in higher prices. The strong real GDP growth since 2019 suggests that overproduction has driven inflation, although supply-side issues have occurred, leading to disruptions in the global economy. Another view of the sources of 2022 inflation figures.
For WAIFC members
The article summaries above allow a short look into the focus of persons whose expertise in their field is solid, broadly recognized, and so influential. The motive is to inform, stimulate thinking, and then decision-making. The ideas presented in April 2022 by G20, and in the future, should help to reset the mind, and the business planning compass in these times of change.
[1] The G30 website is Group30.org. The articles which form the substantive portion of this opinion are available for free when one subscribes to the newsletter.