WORLD AND CRISIS: Dialogue on setting new world monetary system is actual, the participants of the V Astana Economic Forum


WORLD AND CRISIS: Dialogue on setting new world monetary system is actual, the participants of the V Astana Economic ForumIn May 2012, speaking at the V Astana Economic Forum the Kazakh President Nursultan Nazarbayev said that the forum was becoming a forwarder of wide “Eurasian sight” to the problems of global development.

“This is particularly important in the early success of the new geo-economic reality of the XXI century, the Common Economic Space of Kazakhstan, Russia and Belarus. I am convinced that the Fifth Astana Economic Forum opens a new page in the modern understanding of the world, promoting the ideas of reforming the global economy “, said Nursultan Nazarbayev.

President’s speech made great impression on the participants of the arrangement, which included well-known economists, the Nobel laureates, international institutions, political leaders with huge experience, leading experts and business representatives.

Nazarbayev’s ideas are reflected in the Recommendations adopted by the Forum for the leaders of «G20» for the f the world economy progress, they are based on five key principles of the G-GLOBAL suggested by the President of Kazakhstan.

The important part of the Recommendations lies in “Strengthening the financial system and financial integration in order to promote economic growth.” It is noted there that for the previous two decades of financial intermediation has evolved in such a way as to encourage excessive use of debt for households, firms, and financial intermediaries themselves. The tax system, discriminating against equity financing and encouraging home ownership through mortgage lending, exacerbated the tendency to a generalized leverage. Although excessive use of debt has led to the global financial crisis of 2008, deleveraging has become one of the explanations for the slow pace of recovery from the crisis.

Therefore the V Forum partakers recommend the following: to strengthen the provision of payment services by the banking system in each country, with a focus on the full inclusion of every family and business, regardless of whether they are poor, small or geographically removed. With payment through bank accounts and electronic means are a necessary first step to improving access to financial services and increase transparency and efficiency in the system of taxes and transfers. For this reason, the provision of the payment system should be considered a public good and justifies the use of financial resources, as well as state guarantees to protect the savings of the population, when they are stored in banks. It is further recommended to credit based on reasonable risk assessment. It is also proposed to strengthen the separation of the two main functions of depositary banks: the brokerage and intermediation in capital markets.

Financial intermediation between the savers who are willing to buy the bonds or stocks, and the companies that require financing through capital markets, should be separated from the other two main activities of the depositary bank. That allows the depositary bank to avoid the risk of the ability to perform its role as providers of payment services and financial intermediaries between savers and borrowers. Besides, the Forum participants reminded the leaders of «G-20″ of the fact that the Eurozone should have a general regulation and supervision of financial institutions, and national and regional regulation and supervision should be based on similar principles and concepts in order to facilitate coordination and avoid regulatory arbitrage. Tax incentives to encourage home ownership through mortgage lending should be eliminated and, eventually, replaced with upfront subsidies to increase contributions by households. Financial integration of low-income households and small and medium enterprises should be facilitated by qualitative sources of information about their operations and sources of income.

The next section on finance is “Improving the international financial architecture in the interconnected world.”

According to the Forum participants the post-crisis global economic recovery is fragile and is in continued volatility in financial markets. Still many of the fundamental flaws in the global financial system have not been addressed, contributing to the global economic crisis of 2008-2009. Therefore, the first recommendation is a new world monetary system. Expected is the evolution of a financial and monetary system, in which several currencies serve as backup to the world level. It is recommended to initiate a dialogue on the formation of entirely new world monetary-financial system. The Forum proposed to establish requirements for the world’s reserve currency issuers. They must ensure their sustainability by meeting certain restrictions on the size of the national debt and the deficit of the trade balance of payments and to comply with the requirements of transparency mechanisms providing for currency emission, enabling them to freely exchange for all traded assets in their territory, including new technologies.

Another recommendation is the reform of international financial institutions. It is emphasized that many international organizations that are operating at present were formed in the second half of the 20th century, and they were unable to prevent the global crisis and to develop appropriate responses to the nature of the new challenges of this century. Their reform will give a number of powers to these institutions for the implementation of supranational functions of a global regulator.

Forum participants also advised the leaders of the “Big Twenty” to think about the formation of a standing body of world currency regulation.

Forum also proposed to limit the flow of speculative capital.

The thing is that the excess global liquidity, created by countries while adopting massive anti-crisis measures, continues to put pressure on emerging markets, increasing cross-border flows of capital and increasing price volatility. It is also necessary to regulate and supervise “shadow” banking sector. The main drawback of the adopted financial regulation and supervision is that a large part of the financial system generally stays out of the activities of “Basel 3” and is not covered by its terms. It is also recommended to implement international standards of ranking and activity of the rating agencies. A tax on international financial transactions through the cash area is proposed to be considered as a source of income, designed to recapitalize banks and to cover losses of central banks, which they bear when asked to act as a lender of the last resort for banks and states.

VI Astana Economic Forum has been scheduled for 22-24 May 2013. It will discuss the main directions of the global economy development.