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People's Bank of China Deputy Governor Hu Xiaolian urged G20 nations to establish an international wealth fund that would invest proportion of members' surpluses in emerging economies.
According to a paper published on the G20 website on Tuesday, Hu said considerations should be to setting up a "supra-sovereign wealth investment fund", which assist in channelizing capital inflow into developing world. This should allow these countries to serve as new engines in global recovery and growth. The paper was part of a report on the G20 Workshop on the Global Economy held in Mumbai in May.
If fundamental issues including the international monetary system and the route of flowing back of dollars are not resolved, there may be a reoccurrence of the 2005 asset bubbles and even a repetition of the current crisis, Hu warned. This is despite the Federal Reserve exiting stimulus after the crisis is over to wipe out excess liquidity injected during the crisis period. According to Hu, since global savings will flow back to dollar-denominated assets, it will be difficult for the stabilizing policies adopted by the U.S. to meet their goals.
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