Abstract:
In the context of the formation of G-20, the paper points out the absence of reform in
the global financial architecture (GFA) after the East Asian crisis, and assesses
factors that can improve the chances of real reform this time. A factual assessment of
various causes advanced for the global crisis, puts the main responsibility on lax
regulation. Liquidity created by current account imbalances was tiny compared to
endogenous amplification of liquidity in the financial sector. Emerging markets
needed reserves as self-insurance in the face of volatile cross border flows. Even so
global imbalances increase risk. The paper summarizes the Chimerica debate and the
blocks that have stalled progress in resolving the issue. It argues that symmetric and
balanced reform, at individual country and international level, is required to remove
the blocks. Deeper governance reforms will make it feasible. Potential contributions
of the G-20 are outlined. It is argued that India is a useful example of flexible but
managed exchange rates that allowed market deepening and export growth.
