Brazil, Russia, India, China and South Africa (Brics) will together contribute $100 billion to a fund that will be used to stabilise foreign exchange markets, as was announced at the summit of the Group of 20 (G20) nations. It has — correctly — been pointed out that the fund is likely to be too small to protect the currencies of any of the contributing nations from the volatility on international markets. But it is an important political marker as new powers emerge in the wake of the continuing global financial crisis — developing countries increasingly have the financial and economic muscle necessary to protect their interests.
And they are no longer prepared to rely only on international agencies dominated by Europe and the US to regulate the world economy. New urgency must be introduced into efforts to reform international agencies like the World Bank, the International Monetary Fund and the World Trade Organisation — or they will increasingly struggle to remain effective and relevant.
However, while emerging markets were seen as the great hope during the worst of the economic crisis, the momentum during the nascent recovery is seen to be swinging towards the developed countries, specifically the US. It is the US recovery and efforts by the Federal Reserve to dial back its stimulus programme that is contributing to the volatility on currency markets.
There are fears that to protect their economies, emerging markets among others will try to put in place trade and investment barriers. This must be avoided. Free trade and open markets are the best way to nurture global economic growth and improve living standards across the world. Rather, emerging markets need to push through economic reforms necessary to nurture further growth.
And as the Federal Reserve weans the US and international financial system off cheap money as custodian of the global reserve currency, it must do so in a way that balances its domestic interests with those of emerging economies. The world needs both developed countries and emerging markets to be functioning efficiently to ensure sustainable global economic growth.
