Global economic governance after the crisis: the G2, the G20, and global imbalances

This paper argues that a China-US “G2” is neither necessary nor sufficient for the resolution of crucial global order issues such as excessive global payments imbalances. Although the bilateral payments imbalance between both countries constitutes the largest component of global imbalances, the acuteness of relative power concerns and their reverberation in domestic politics has rendered the G2 unable to address this problem effectively. Their bilateral conflict has also hampered the efforts of the G20 and the IMF on global imbalances, but these two bodies together offer much better prospects for progress in this area. Reducing global imbalances requires them to address their main origins, which lie in the domestic political constraints on national policymakers and the asymmetries of international power that have progressively delegitimized the IMF and the multilateral surveillance process. Domestic political constraints will remain important, but the latter problem is, surprisingly, less intractable. The G20 and IMF could achieve progress by (1) undertaking more ambitious reforms of IMF governance to improve the legitimacy of IMF finance and of the multilateral surveillance process, and (2) promoting a more symmetrical multicurrency reserve system with associated policy guidelines for actual and potential reserve currency issuers, and reserve accumulation guidelines among the rest of the IMF membership