World economy, G20 in charge

On 25 September, the Pittsburgh G20 summit has declared that the international conference centre for the World economic cooperation had shifted from the G8 to the G20. This changeover was understood as the relocation of the location of power from the developed countries to the emerging markets. The White House made a similar announcement the night before. The global Anglo-American leadership (G7) has made way to the newly emerging collaboration of the US, EU, and the BRIC nations.
G-20 to Assume Mantle as World's Main Economic Body
The G8 will continue to exist, albeit its agendas will be limited to economic development and security issues. Canadian PM Harper expressed the G8 summit in 2010 will be held in Canada, as planned. The G20 will take over some of the most important G8 topics such as the exchange rate and the framework for global economic growth.
The G20 is joined by the world’s most important nations. The aggregate GDP of its members represent 85% of the world’s GDP. The Pittsburgh declaration is not a normative expression but an officially agreed matter. The G8 was the most important decision-making body of the world. The UN Security Council is the supreme forum for security matters but the G8 had more significance in other areas including the economy. From now, the most important decision-making body will be the G20.
The Financial Times wrote that the emerging markets became equal partners [to the developed nations] as a consequence of the great depression. That said, the traditional G8 members (US, Europe, Japan, Canada, Russia) have acquired equal members of the BRIC and other large markets in the G20. Editorial - G20 takes charge
Since the 19th century when Europe became a great power after industrial revolution and political revolutions, the West has been the centre of the World for 150 years. The development occurred in Europe and regions where Europeans emigrated (eg. North America) and then Japan which adopted Western-style industrial and political revolutions at an early stage. After all, the West and its allies have dominated the world. The G8 was an institution for such nations. The changeover of the G20 signifies that the dominant power is now shifted from the West to ‘West + BRIC’; an event that destroys 150 years of world order.

The G7 as a dollar guard
The G7, the predecessor of the G8, was created in the 1970s. Its mission was to institute West Germany and Japan to support the dollar, whose credibility had been damaged by US fiscal deficit and the Nixon Shock of 1971. The dollar as the world settlement currency is the source of American hegemony, and a necessary condition to sustain the West to lead the world. During the last days of the Soviet Union, Gorbachev requested a membership of G7 as a condition to end the cold war, which was realised by admitting Russia (G8). However, during Putin’s term, the relationship between Russia and UK-US deteriorated, and important economic issues were discussed amongst the old members of the G7 without Russia.
The G8 started to invite leaders of the emerging market nations in the late 1990s. This is due to the slowing of economic development except the financial sector in the industrialised countries, and the continued growth of the emerging markets. Yet, the US began to acquire unilateral tendency at the same time, such that the presence of India and China at the G8 was largely limited to ceremonial occasions like photo shooting and dinner parties. The ‘expanded’ G8 did not have much utility. The unilateralism of the US effected to unite the BRIC nations, bringing together Russia and China to reconcile decades-long spats. The Shanghai Cooperation Organisation is a loose collective security unit to potentially rival the NATO. The cooperation between the BRICs enabled them to reject inferior treatments by the West.
Britain and US, which led the G8, were making enormous profits from their financial industry until 2007. However, with the Lehman bankruptcy in September 2008, the collapse of their financial system was quick. The loss of enhanced demand from the low-cost abundant capital resulted in economic depression. The US is no longer the consumption centre of imported goods. Importance vis-à-vis economic growth has shifted to those that were not fully integrated to the hitherto financial system, such as China.

Frequented warnings of the dollar collapse
The crisis of the 1970s was overcome by recognising West Germany and Japan as major powers for the exchange of their support for the dollar. The recognition of the G20 this time looks quite similar to such an arrangement. Yet, there is a critical difference. Germany and Japan were defeated nations of the WWII, and they were remade as client nations after the post-war occupation. US could grant certain authority to them in the international community, but they wouldn’t challenge the Anglo-American regime so that they would buy the dollar. In contrast, Russia and China are the victors of the war, and they possess the veto rights at the UN Security Council. The G7 was an institution to keep the dollar alive. The G20 speaks of post-dollar currency regime, such as the one based on IMF’s Special Drawing Rights. Not only the Russian or the Chinese or the Brazilian, but also the leaders of France and Germany openly indicate the end of the dollar as the key currency, and are in search of an alternative regime. The G7 prolonged the life of the dollar, but the G20 seems to put an end to the dollar institution.
Russian premier Putin says US dollar issuance 'uncontrolled', calls for diversified reserves
Top Chinese official signals move away from dollar
French President: dollar Can't Remain World's Only Reserve Currency
President Zoellich of the World Bank, also a member of G20, warned that the dollar’s place cannot be secure, as alternatives to the dollar standard were emerging.
World Bank says don't take dollar's place for granted
Zoellich criticises that the Fed had failed to regulate US finances and that Obama was wrong at attempting to strengthen the Fed to face off the financial crisis. So long as the Fed is in charge of the financial policy, the crisis will not cease to exist, and the credibility of the dollar (printed by the Fed) will be in jeopardy.
Zoellick Favors Power for Treasury, Not Fed
He also pointed out that the changing global economic forces would include many nations, not just the US. The world economy until the 1970s had the US and its allies as centres of production and consumption. From the 1980s till now had a pattern of production in emerging countries and consumption in the US. In the near future, it will be the emerging markets that take care of both production and consumption. Indeed it is only right to emphasise the G20 instead of the G8, and new members must be admitted for the decision making of the international economy.

From US to China, the consumption hub
Already, the United States partially renounced to be a locomotive of the international economy by importing goods. Lawrence Summers, an economy advisor to Obama, expressed that he wished to reorganise the US economy from consumption to production, by weaker dollar and thereby regaining export competitiveness. The new DPJ administration of Japan sent its treasury minister Fujii to US secretary Geithner to collectively announce that the yen would not be cheap.
Global rebalancing to weaken dollar, quietly
After the Lehman Shock, US consumers do not spend much, and instead increasing the savings. The consumer balance sheet used to be negative (savings < debts) but the savings are now speculated to be as high as 8 percent.
Pimco's Clarida Says U.S. Savings Rate May Exceed 8%
If the US consumers are not spending, US wouldn’t import as much either. Japanese manufacturers cannot depend much on their export to the US, thus cheap yen is meaningless. Since 2006, the top export destination of Japan, the second largest economy in the world, has China, the third largest economy. Chinese economy is still booming. Toyota’s production in China has been breaking records – the first half result in 2009 exceeded 53% of the preceding year. Japanese automakers get boost in China
China is expected to be one of the engines for the world economy. It is only a matter of time that the yuan will stop the peg and shift to the floating exchange regime. In the past, the foreign exchange only concerned world’s three currency – dollar, euro, yen – but it will soon joined by the yuan and possibly several others.
G-20 on Economic Regulation: Don't Get Your Hopes Up
Recently, there is a resurgent argument for Tobin’s Tax, by which all cross-border financial transactions shall be taxed by 0.005 percent. The revenue will be collected by UN organisations that will work for poverty alleviation. This is a plan to give financial independence to the UN from the West, that had the capital. At the same time, transactions will be monitored by the UN, such that speculative attacks to hostile states cannot take place anymore (thus media outlets such as The Economist disagree with Tobin’s Tax).
Op-Ed: Global Tax
Tobin taxes - wrong tool for the job
Could 'Tobin tax' reshape financial sector DNA
Venezuela’s Chavez proposed an independent development bank for South America which was not dependent on the capital from the West in 2006, and Brazil and Argentina signed at the G20 summit. If successful, South America can have a collective power within the IMF. Are these simply anti-America rubbish? These nations have considerable influence in the UN General Assembly, and began to function as the outer edges of the new G20 regime.
Discussing the dollar collapse before the dollar really collapses
The G20 contains an enigma. Though unofficially, it discusses the changeover of the dollar standard based on the alleged collapse of the dollar. The shift of world settlement currency is not one of the official discussion themes of the G20.
Stiglitz Sees Risk to dollar, Need for Reserve System
UN Says New Currency Is Needed to Fix Broken 'Confidence Game'
The G20 is metaphorically called the Second Bretton Woods. If the dollar is stable, no such discussion is needed. The very fact that world leaders are discussing about it damages the dollar credibility. Yet, the dollar has not collapsed. Indeed, the US during the Bush administration increased fiscal deficit, giving pressure to potential danger. But the foreign exchange has not reported waning dollar. Commodity market especially gold, which tends to heat up when currencies are not dependable, has only demonstrated a limited hike.
Raise the Bismarck!
Nonetheless, this is not a missable phenomenon. A number of major US banks are ghost banks that cannot survive without (un-)official credit lines from the Fed. Large scale capital injection by the Fed to the financial industry weakens the Fed itself, and the dollar that it prints. In the end, the dollar cannot be trusted.
Historically, financial crises in the US had been sorted by the Fed supporting the financial institutions for a year or two, and the asset markets such as real estate picked up the pace. But the crisis of 2008 is expected to continue for another 1-2 years, and the price drop expanded from household assets to commercial real estates. Twelve percent of Americans (35 million) receive food stamps. Consumption, which occupies 60% of all economic activities, does not seem to recover. Stock prices are no longer ‘preceding indicator of the economy’ but a manipulated figures by the government. Treasury Secretary Henry Paulson knew a bankruptcy of a major player of leverage finance such as Lehman Brothers would result in catastrophy.