Global Financial Management and Economic Development
It has been more than eight years since the international financial crisis. The world economy has climbed out of the depths of that steep downturn and is back on track towards recovery. But it faces a number of challenges: one after the other the major engines of the world's economic growth have shifted into lower gear while technological developments have played a reduced role in spurring growth. Population increases have also moderated and many countries are dealing with the problems of an aging society. At the same time,geopolitical risks are rising,protectionism is rearing its head and globalization is facing new resistance. International trade is struggling and the appetite for investment is weak. Although there has been progress in global financial regulatory reform,many economies struggle with high levels of financial leverage and risks of serious financial bubbles are accumulating. Spillover effects from the monetary policies of some countries have become more serious with repeated bouts of turbulence on many financial markets. At the G20 summit in Hangzhou,President Xi Jinping stated that it was necessary to keep abreast of the times and combine knowledge with action. Governments need to work together and share the benefits of cooperation and weather the bad times together. We need to strive for a stronger world economy that has sustainable,balanced and inclusive growth.
These profound and meaningful words should serve as a guide for improved global financial management and promote financial reform as well as a more open and inclusive development.
Improving the Climate for Global Financial Management
President Xi also pointed out that it was necessary to continuously improve the international monetary and financial system and optimize the management structure of international financial institutions. It is also essential that we improve the global financial safety net. A sophisticated international monetary and financial system is important for solidifying global economic development. It can aid the real economy by safeguarding global market stability and improving the global ability to address risk. It allows early detection of risk and aids in risk prevention. It helps deal with crises effectively and keeps them from spreading. And it can support real economic expansion and lay a solid foundation for a new round of growth and prosperity. China is committed to building a better international monetary and financial system to enhance the stability of that system. After taking the G20's rotating presidency,China revived the working group on international financial structure in an effort to improve global financial management to promote reform of the international monetary and financial system.
It is necessary to study the usage of the Special Drawing Rights of the International Monetary Fund and expand the SDR's influence to the maxim level. The SDR is important to the stability of the international monetary and financial system and its beneficial role is expanding. As of April this year,the People's Bank of China has been issuing data on China's foreign exchange reserves,international payments and international investment as calculated in US dollars and the SDR. On October 1,the renminbi officially joined the SDR basket of currencies. On August 31,the World Bank successfully issued 500 million SDR-denominated bonds on the domestic interbank bond market. The debt had a maturity of three years and an interest rate of 0.49%. The subscription ratio was 2.5 times the amount on offer. This was a significant event that helped promote the marketization of the SDR financial tool. SDR-denominated bonds have an advantage in providing risk diversification and they have been highly popular with financial institutions at home and abroad. Keeping accounts in SDR can reduce the impact from currency fluctuations. In the future,China will work to enhance the environment for further issues of SDR-denominated bonds and other financial products.
It is necessary to strengthen the building of a global financial security net. The global financial security net includes the security guarantee mechanism of foreign exchange reserve,bilateral currency transfers,and regional monetary arrangement of all countries. This means a stronger role for the IMF and gives full play to the implementation of multilateral mechanism,the Chiang Mai Initiative. In 2016,there was a joint testing of the Chiang Mai Initiative and the IMF in crisis response capabilities.
Minority Rights
There is also a need for more work in strengthening the effectiveness of sovereign debt contract terms and introducing collective action clauses and pari passu clauses based on the principle that minority rights are subordinate to majority rights during debt restructuring. This is necessary to avoid the failure of debt restructuring efforts due to a small number of creditors refusing to cooperate. It should encourage the Paris Club to absorb more members such as emerging economy creditor countries and regions. It should support the Paris Club in discussing a series of sovereign debt problems,providing the platform to creditors to collaborate and coordinate and ensure the ability recover debts to the greatest degree possible in debt restructuring instances. The global community needs sustainable debt solutions to resolve potential sovereign debt problems in a balanced fashion.
It is also necessary to promote reforms of the IMF structure and management. Absorbing more emerging market developing economies as the members of the IMF will enhance their influence and make the organization more representative.
Improving supervision of capital movements is another area where work is necessary if we are to reduce risk. There is a need for the construction of a macro-financial framework that includes prudential management policies as well as monetary and fiscal policies and structural reforms. It is imperative that we have the ability to monitor potential risks and vulnerabilities of the financial system,and that we work hard to mitigate the effects of periodic fluctuations in the financial system. We need to avoid negative impacts on domestic economies from external sources of loose liquidity.
As President Xi Jinping said,the G20 shoulders global responsibilities and it needs to listen to different interest groups. President Xi promoted the idea that it should implement the 2030 Sustainable Development Agenda to enhance inclusive development. As for the financial arena,it is necessary to promote inclusive finance and green finance,thereby contributing to sustainable development.
This year,China brought inclusive finance into the G20 discussion. Inclusive finance focuses on financial services which serve all people,particularly low-income families in remote areas to ensure that they too have basic financial services. China has always paid great attention to this iissue. After taking the G20's rotating presidency,China has been supporting studies of inclusive finance with other countries. This has led to advances in inclusive digital financial development. Digital inclusive finance makes use of digital technology to strengthen the links among econom