Reforming global finance

On Friday night, distinguished speaker José Antonio Ocampo addressed a crowded auditorium on a topic he referred to as the global monetary ‘non-system’. Ocampo is a professor at Columbia University in New York and the former UN Under-Secretary-General for Economic and Social Affairs.

The lecture took place at the Waterloo Centre for International Governace Innovation (CIGI) campus auditorium.

Prominent guests at that evening’s lecture included local business mogul Jim Balsillie along with former Canadian Prime Minister and Liberal Party leader Paul Martin.

Ocampo started his lecture off explaining the status of the global monetary ‘non-system.’

“At the beginning of this crisis when there was a major push to reform finance, the G20 took that initiative, many of us actually thought that there would also be major initiatives in the international monetary system,” explained Ocampo.

While he acknowledged that some proposals were put forth, Ocampo said that, “Out of these several initiatives nothing of importance has really happened, and I think this is therefore something that requires lots of attention.”

Ocampo elaborated on one option, which came initially out of Britain in the 1960s to restructure the global monetary system around a global currency, as opposed to one centered on the U.S. dollar, which he suggests has been relatively unstable since the early 1970s.

“So this is the first international monetary system that in a sense has not had at the centre, stable money. The world became hostage to the instability of the dollar, and the sources of that instability,” continued Ocampo.

He went on to add that the nature of the exchange rate system for trade today is also problematic due to volatility of currencies.

He said that the system, which existed in the past “was a very good system for international trade, because international trade does require a certain level of stability of the exchange rates.”

Another contributing issue to global imbalances is the surpluses created by oil exporting countries, while others are struggling with large deficits.

Ocampo explained that a system that solves all these problems is a complex one and he focused on a few of the essential alternatives that are available.

One of these options, moving to an international monetary system, he acknowledged as unlikely to happen.

“There was a large expectation that the Euro would become such an alternative currency,” he recalled. “That has not happened.”

Ocampo added that he also does not believe that the Chinese will be able to elevate their currency to the status of the American dollar. He said that this cannot happen because the essence of having a currency at the centre of the system is to have a very liquid market for the securities in that currency and these are characteristics the Chinese will not have for a long time.

He explained that issues such as these are also not well adequately addressed through the G20 either.

“In other aspects the G20 is a highly deficient institution, first of all in terms of legitimacy, because it’s an ad hoc institution of self-appointed members.

“Which is not at least an institution I can accept as legitimate, so long as, in particular, my country is not a member, and there are 172 countries in that situation,” he said frankly.

Ocampo originates from Colombia.

Steve Paikin, anchor and senior editor of The Agenda on TVO, who moderated the discussion following Ocampo’s lecture, asked, “At the risk of tooting our own horn too much, do you think there are any lessons for the rest of the world from how Canada has done it’s business?”

“Yes, of course,” Ocampo concluded.

“I think it shows the way you manage, regulate and supervise your financial system is critical for how the financial system performs in crisis. I think that’s a major lesson.