What should a “new Bretton Woods” involve? This article argues that the major task at hand is reorganising international economic institutions rather than tackling regulatory details. The G7, International Monetary Fund, and Financial Stability Forum are falling behind because they are not structured for the roles we need them to play.

A “New Bretton Woods” is the name given to a summit this weekend of leaders of the world’s top economies to map out a response to the global financial crisis. The meeting received this label because it aims to reconsider the structure and the role of international economic institutions such as the G7, the International Monetary Fund (IMF), and the Financial Stability Forum (FSF).

Priorities: Institutions not rules

The goal of this meeting should be to redesign the international financial architecture. Namely, to:

• Rethink the tasks assigned to the international bodies involved in the regulation of financial institutions, in the monitoring of the international financial system and in the management of crises; and
• Spell out the information flows and the lines of command that should regulate the relationship among the various institutions, e.g. IMF, FSF, Bank for International Settlements, etc.

The goal should not be writing new rules for these markets.

Focus on IMF, G7, FSF and ECB

What should the summit aim to achieve? It should focus on redesigning institutions, namely the IMF, conceived in 1944 when western leaders met in Bretton Woods and set out a new financial order, the G7, the FSF and even the European Central Bank.

G7. This institution still bears the imprint of the Second World War. Why are large countries such as China, India, Mexico and Brazil not members of the G7, while others such as Italy are? Shouldn’t the Eurozone countries have only one, heavyweight representative in international economic summits? If the G7 wants to be something more than a photo opportunity for European and North American politicians, it needs a major restructuring. Otherwise it will become even more irrelevant than it already is. The G7 should be transformed into a “New G8” whose membership should include a limited number of systemically important countries/regions, such as: US, Japan, UK, Euro area, China, Brazil, Russia and some representation from the Middle East. read more