Earlier this year, the Group of Seven created the Financial Stability Forum, which has the critical role of identifying gaps in the regulation of financial systems and pointing to solutions to address these vulnerabilities. The forum has set up three working groups that are studying important issues in the international financial system.
These steps contribute important improvements to the international architecture. As we have seen over recent years, however, we still need a forum that can provide a broad overview and that can address issues that go beyond the responsibilities of any one organization or that involve more than financial regulation per se. The crises of the last two years have clearly demonstrated that there are close links between exchange rate regimes, financial systems, the real sectors of our economies, and society at large. The crises have also shown that what happens in emerging markets matters in a big way to everyone. There is therefore a need for an ongoing forum, such as the newly established Group of 20, that includes not only industrial economies but also key emerging and developing economies as well. The Group of 20 will not supplant existing forums and their decision-making roles, but rather will support their efforts. This new group will be an effective instrument for focusing on the larger issues and for promoting consistency and coherence to the various efforts and forums aiming at reforming and strengthening the international financial system.
In order to help achieve this, it is important that the group be as flexible as possible, both in the way it operates and in the questions it considers. The group will be a forum where ministers can talk candidly about important policy issues in a format that encourages spontaneity. The broadness of the group’s mandate will afford it ample opportunity for flexibility in the questions it considers.
At the same time, the new group must take care not to duplicate work under way in other forums. Rather, the Group of 20 should complement and help coordinate these efforts.