Two extraneous issues have wormed their way into the G-20 Economic Summit agenda this week. Neither have anything to do with the present financial crisis, but a lot to do with domestic and international politics.
The first is the fanciful Russian and Chinese call for a new reserve currency to replace the dollar.
The Russian motivation is typical: it simply drives Russian officials nuts that as the ruble weakens, their citizens seek the relative safe haven of the greenback. No one should be confused into thinking Russia has discovered some altruistic concern for global financial accounting.
The Chinese motivation is more complicated, but equally trivial. Zhou Xiaochuan, governor of China's central bank, is a serious, talented official. If China had more officials like Zhou we would all feel more comfortable about that nation’s position in the global economy. But Zhou is not beyond taking advantage of an opening to poke the United States in the eye if given the opportunity.
But the Chinese broadside is disingenuous. The Chinese are concerned about the value of the dollar because they accumulate huge amounts of them. They accumulate huge amounts of them, in large part, because of their policy of pegging their currency to the dollar. (In fact, China’s currency management is one of the more significant contributors to global imbalances and asymmetric currency and capital flow adjustments.)
If the Chinese really wanted to address their concern, they could go to the heart of it and allow their currency to adjust freely in currency markets.
The second distraction arrives from continental Europe in the call for cracking down on so-called “tax havens” like Switzerland and Caribbean banking centers.
Like the reserve currency distraction, one is hard-pressed to find a connection between this issue and the global financial crisis. In fact, in Europe the issue has nothing to do with global financial stability, and everything to do with domestic politics and concerns of “tax competition”.
It drives European officials nuts every time one of their celebrities relocates to Switzerland in order to avoid the confiscatory tax rates of France or Italy. The Europeans have long sought to crack down on tax havens, and now see the window of opportunity in the form of the global financial crisis.
With serious issues of banking and financial market regulation needing to be addressed, it’s unfortunate these two sideshows will find their place on the agenda.
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Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.