Persuading China to change its currency policy would be a worthy goal for a new Bretton Woods conference. But currency reform is low on the agenda of the summit that the Bush administration plans to host on Nov. 15. (The administration styles this gathering a "G-20 meeting," ignoring the European talk of a Bretton Woods II.) The British and French leaders who pushed for the meeting want instead to talk about financial regulation -- how to fix rating agencies, how to boost transparency at banks and so on. But many of these tasks require minimal multilateral coordination.
If the Europeans shrink from demanding that China cease pegging to the dollar, it's perhaps because they anticipate the concession that would be asked of them. China isn't going to give up its export-led growth strategy for the sake of the international system unless it gets a bigger stake in that system -- meaning a much bigger voice within the International Monetary Fund and a corresponding reduction in Europe's exaggerated influence. When you strip out the blather about bank transparency and such, this is the core bargain that needs to be struck. Naturally, the Europeans aren't proposing it.
It will be up to the two great powers -- the U.S. and China -- to fashion the deal that brings China into the heart of the multilateral system. Here, too, is an echo of the first Bretton Woods, for underneath the camouflage of a multilateral process there was a bargain between two nations. Britain, the proud but indebted imperial power, needed American savings to underpin monetary stability in the postwar era; the quid pro quo was that the U.S. had the final say on the IMF's design and structure. Today the U.S. must play Britain's role, and China must play the American one.
There's a final twist, however. In the 1940s the declining power practiced imperial trade preferences; the rising power championed an open world economy. When Franklin Roosevelt told Winston Churchill that free trade would be the price of postwar assistance, he was demanding an end to the colonial order and the creation of a level playing field for commerce. "Mr. President, I think you want to abolish the British empire," Churchill protested. "But in spite of that, we know you are our only hope."
at the behest of the White House. For those of you who are familiar with Mallaby's writing, it comes as no surprise that he's not quite sanguine on its prospects. He cites China and the US as pivotal figures and the Europeans as peripheral ones. Plus, unlike the original Bretton Woods, key issues on the table do not include currencies. Here is an excerpt from the Wall Street Journal article: