Writing in the Financial Times, World Bank President Robert Zoellick argues for greater economic coordination among the G20 nations. It was not clear from his op-ed exactly how coordinated a system he envisions. On the one hand, he calls for a monetary system to succeed Bretton Woods, implying a system of fixed exchange rates (and a role for gold). He suggest that the US and China can agree on specific, mutually reinforcing steps to boost growth and, possibly, an agreement for renminbi appreciation. He also calls for an end to unilateral currency manipulation. On the other hand, he argues that the developing world should rely on flexible exchange rates.
I was also confused by a couple of important question that he left unresolved. What can the US do that would encourage the Chinese to agree to an appreciation of their currency? Does he view the Fed’s announcement of quantitative easing as a unilateral exchange rate manipulation? And where is the rising sentiment in favor of protectionism in Congress that he fears? Is the incoming Republican House majority likely to push for protection?
Certainly, it is difficult for to argue with arguments in favor of greater monetary/exchange rate coordination, structural reforms, and those against impediments to free trade. Eichengreen and Irwin argue that countries that remained on the gold standard during the Great Depression were more likely to impose protectionist trade measures than those that devalued, so it is clear that trade and currency issues are related.
Nonetheless, Zoellick seems to raise more questions that he answers.