G20 and the hope for global co-ordination

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Media captionLeaders of the G20 will meet to discuss the global economic agenda in St Petersburg in Russia

The lofty aim of global economic policy co-ordination is at the top of the G20 agenda once again.

This is not to suggest that it's not needed - just that action, rather than discussion, hasn't happened very often.

There are certainly areas where co-ordination among countries would be helpful, including tax avoidance and combating tax havens.

More than 50 countries, including, crucially, the Asian countries that had lagged behind in joining in, such as China and Singapore, have signed up and progress is being made.

G20 emerges

What I am referring to is the recurring call to co-ordinate economic policy globally that hasn't really been answered.

Think back to November 2008 when President George W Bush convened the G20, dusting off a group that had been in existence for about a decade, but hadn't really been a premier body in global decision making.

It was what was needed, since the G7/G8 didn't include emerging economies.

The aim was for governments to co-ordinate their fiscal stimulus.

The International Monetary Fund called for the G20 countries to increase their discretionary government spending by 2% of GDP.

Since some of that spending would spill over and benefit other countries through exports, by co-ordinating, there would be a bigger bang for the buck.

That didn't happen explicitly, though most countries did boost government spending at around the same time in any case.

If that seemed challenging, at least there was agreement as to why co-ordination would be beneficial. There was also a straightforward action that could have achieved it.

Banks co-operate

Of course, it's important to note that where there has been policy co-ordination is among central banks.

The Federal Reserve and others, including the People's Bank of China, all cut interest rates during the depth of the global financial crisis, which increased the impact of their actions, even though it wasn't explicitly co-ordinated.

Subsequently, central banks worked together.

Most notably, the Fed, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada, and the Swiss National Bank set up swap lines to help each other access US dollars and each other's currencies cheaply.

That helped maintain liquidity for global banks and other financial institutions, which were taking fright at the frail state of eurozone banks, as that crisis threatened to become another banking crisis.

During the five years since the 2008 crisis, though, the actions of central banks have become the source of concern.

Emerging economies are worried that central banks don't take account of the wider impact or spillover from their actions.

But it's less clear what can be done about it.

For instance, the global impact of the Fed's cheap cash or quantitative easing (QE) policy has been a recurring source of concern.

Tapering worries

Countries such as Brazil have been worried about how it would weaken the US dollar and lead to a range of problems in their economies, including a possible currency war, in which each country weakens its exchange rate to sell more exports.

Now the worries are over the impact of the "tapering" of the Fed's cheap cash injections.

Money has flowed out of emerging economies across the world and back to what are perceived to be safer US investments.

This is helped by the S&P 500 experiencing an unprecedented third year of earnings growth.

I have written several posts on the great reversal of cash.

Should the Fed refrain from "tapering" its cheap cash injections, even as the US economy is recovering, in order to keep cheap money flowing into emerging markets?

Is that ultimately sustainable in any case?

Needless to say, it's unclear as to what global co-ordination would look like in this instance.

Indonesia's finance minister has called for more transparency regarding the timetable for the Fed to end the era of cheap cash, while the IMF has urged the US to take these concerns into account.

As with all such summits, the hope is that by discussing these issues, a solution will be found.

That is, if there is time for such discussion, as Syria may well dominate the agenda.