New agreements may be in short supply when finance ministers of the Group of 20 leading economies meet this weekend in Paris. But their efforts to address the weaknesses of the international monetary system deserve close attention. The international economy is shifting to a new multipolarity. About half of global growth is now from developing economies and this will transform power relations. The US dollar will remain the predominant reserve currency, but over time the world economy will need to manage a system of multiple major currencies. We need to modernise multilateralism to steer towards a new monetary system.
Money is power. Shifts in monetary regimes have signalled the rise of new political orders. It is not accidental that kings stamped their faces on coins. But when change is about co-ordination not domination, sovereigns need incentives to avoid a slow degradation of the old order. A new framework can offer just such incentives to encourage old and new actors in the global economy: the Group of Seven developed economies; the leading emerging market economies; the International Monetary Fund; the World Bank; and the World Trade Organisation.
The developed economies of the G7 have an interest in establishing an important norm: to maintain flexible exchange rates, without intervention, unless the group agrees special circumstances warrant action. Over past years, with a few exceptions, this policy has been an unwritten norm. Now the G7 should issue a statement to reflect this agreement and set a standard for others.