The G-20 played a key role in averting a global depression but the IMF has greater overall legitimacy.

While the G-20 leaders did well in averting what would almost certainly have been a global depression of 1930s dimensions, questions are now being raised about the G-20's appropriateness. This seems curious: surely countries have every reason to appreciate the quality and speed of the decisions taken?

Yet it is understandable that these questions are starting to be asked. In my view, however, they can also be answered: and the best way of addressing them would be to make changes to an institution that already exists: the International Monetary Fund (IMF).

To be effective over the medium term and beyond, a body such as the G-20 needs to satisfy two conditions. First, it needs to involve many more than just 20 of the world's economies. And second, in so doing it has nevertheless to retain its capacity to be nimble and decisive.

Unrepresentative force

At present, entire groups of countries and regions have no voice and no representation in the work of the G-20 or its institutions. Many of them are important contributors to the activities of the IMF, yet they do not participate in the decisive discussions on international, economic, and financial issues and cooperation; and neither do they participate in the discussions about potential changes to the governance of the IMF. Surely this is not appropriate. Taxation without representation is at odds with the very principles of multilateralism and international cooperation that have prevailed since the end of World War Two.

Global governance is best served by a statutory-based international economic order, with effective and legitimate multilateral institutions in which all countries are represented, directly or indirectly. But this presents a challenge: how to ensure that the group that actually takes the decisions is small enough in number to be quick and decisive, yet broad enough to have enduring legitimacy.

The circle is, however, capable of being squared satisfactorily - by making appropriate changes to the IMF. Virtually all countries are represented and participate; the IMF has become a key forum for policy collaboration; it was central in drawing and presenting the initial lessons from the crisis; it was pivotal in providing finance to countries with temporary balance of payments needs; and it helped prepare the overall framework for the international policy response.

Moreover, the international community is used to turning to the IMF in times of crisis, in part because it is an effective institution that can perform the vital functions that are called for, but also for the simple reason that there is no other such institution.

It is not surprising, therefore, that the G-20 itself is increasingly using the framework of the IMF as an instrument of its policy implementation, including in respect of its current, and unprecedented, exercise in policy collaboration with the adoption of the framework for strong, sustainable and balanced growth. IMF surveillance is thus perforce acquiring a new dimension, by assisting G-20 finance ministers and central bank governors in the process of mutual assessment of their economic and financial policies.

Credible alternative

On the matters of economics and finance, I view the G-20 as a complement, not an alternative, to the IMF. An appropriate solution would be the recognition of the IMF and the International Monetary and Financial Committee (IMFC) as the statutory-based principal forum for co-operation on these matters.

This would ensure that the world remains able to take quick and decisive economic and financial decisions when needed. G-20 collaboration would be recast in the IMFC or in an enhanced version in the IMF Council if the membership decides to activate the provisions on its establishment. The IMFC is an institution of the IMF and thus has a statutory basis. It engages the membership of the IMF directly and indirectly.

Rotating representation

It would lend legitimacy and integrity to the process of international economic and financial co-operation. Alternatively, or as an intermediate step, the G-20 could enhance its legitimacy by increasing the number of countries represented. A system of constituencies could easily be implemented, which would enable smaller countries to participate, albeit indirectly. A system of rotating representation would enable each country to experience direct participation from time to time.

The global crisis pushed the G-20, a non-statutory body, into closer co-operation and at new levels. It operated effectively and powerfully in the broad international efforts to stabilise the global economy in late 2008 and early 2009. Without its prompt and comprehensive action, the consequences of the global crisis could well have been seriously different. However, if the G-20 is to continue being effective in meeting the world's future economic and financial challenges it must evolve and address the issues of governance and legitimacy.

Svein Gjedrem is the governor of the Norges Bank, the central bank of Norway

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter