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November-december 2003 Strengthening
Global Finance "How
can we best minimize, manage and predict financial risks?" This
was the question posed by Victor Menezes, senior vice-chairman
of Citigroup and chairman of the board of the US National Center
for APEC to two distinguished panelists at the final session of
the second day which focused on "the future of the global
financial system". He said risks seem to be occurring
annually and that the issues of concern are exchange rate
problems, interest rates, public debt and corporate governance.
Mr. Menezes then reminded all participants that financial
systems form APEC's infrastructure upon which all trade is
transacted, while also serving as information and capital
intermediaries. Professor
Morris Goldstein of the Institute of International Economics
reiterated the issues mentioned by Mr. Menezes, but said he
would limit his remarks to exchange rates. He said that every
economy with an overvalued fixed or floating rates ultimately
collapsed under market pressures and then turned and looked more
specifically at the American-Chinese dispute over revaluing the
RMB (yuan). Professor Goldstein said he had come to 6
conclusions. The first is that the US must reduce by half its
current account deficit which now stands at over US$ 550
billion, or 5% of the GDP. Second, he felt that China should
revalue the yuan by 15 to 20%. At the same time, China must
restructure its financial system and tighten up its short term
loans as well as continue to open up its markets. For
the revaluation to succeed, Professor Goldstein recommended a
two prong approach. First, the yuan is revalued by 15 - 20%.
With this change, the yuan should be pegged to a 3-currency
basket including the US dollar, EURO and Japanese Yen. After the
banking system has undergone further restructuring and reform,
the currency can be floated. He said what must be remembered is
that this revaluing won't just benefit the US, but also the
Asian economies, Europe and the Americas as their products will
become more competitive as well. Professor
Goldstein said that the revaluation would actually only help
reduce US account deficit by US$ 50 billion and that US
manufacturers were exaggerating its importance. Still, his
biggest concern is that if China does not take action, America
could adopt protectionist policies that would be the detriment
to all. David
Murray, who has been the CEO of Commonwealth Bank of Australia
since 1992 and is an active member of ABAC, talked about Asia
since the financial crisis of 1997 and recommendations the
council has made. He explained that even though Asian economies
have rebounded rather quickly, they are still very vulnerable as
they have not yet instituted the necessary reforms to build a
stable foundation.
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