Improving global financial governance requires all parties to strengthen dialogue and cooperation.
Speech: Pan Gongsheng
Respected Secretary Jin Ning, former Governor of the People's Bank of China Mr. Zhou Xiaochuan, Mayor Gong Zheng, esteemed comrades Wang Jiang, Yun Ze, Wu Qing, Hai Feng, He Xin, and distinguished guests:
Hello everyone!
I would like to express my sincere gratitude to the Shanghai Municipal Party Committee, the Municipal Government, especially Secretary Chen and Mayor Gong, for their concern and support for the financial sector and the People's Bank. It is a great honor to serve as the co-chair of this forum. After years of effort, the Lujiazui Forum has become a highly influential and market-communicative platform for international exchange. On behalf of the People's Bank and the organizers, I extend a warm welcome and heartfelt thanks to all of you!
At last year's Lujiazui Forum, I reported on China's monetary policy stance and the evolution of the future monetary policy framework. Over the past year, the People's Bank has maintained a supportive monetary policy stance, implementing various monetary policy measures from the perspectives of quantity, price, and structure, effectively supporting the sustained recovery of the economy and the stability of the financial market. At the same time, we have improved the monetary policy framework, optimized the intermediate variables of monetary policy, cultivated policy interest rates, enhanced the transmission efficiency of monetary policy, enriched the toolbox of monetary policy, and improved policy communication and expectation guidance. The transformation of the monetary policy framework is a gradual and ongoing process, and we will continue to assess and refine it in the future.
Next, I would like to share some thoughts on "Several Considerations on Global Financial Governance." Global financial governance is a very broad topic. Today, I will mainly focus on four issues: the international monetary system, the cross-border payment system, the global financial stability system, and the governance of international financial organizations, sharing a few views with you.
The first issue is about the international monetary system.
Historically, the international monetary system has always been evolving, and the replacement of international dominant currencies reflects profound changes in the international landscape and the iteration of national competitiveness. In the 17th century, the Dutch guilder became an early international currency; from the late 18th century to the first half of the 20th century, the British pound became the dominant international currency; after World War II, the US dollar established its dominant position and has continued to this day.
International dominant currencies possess the attributes of global public goods, borne by a sovereign currency, which inherently comes with some instability issues. First, when the interests of the sovereign currency country conflict with the global public goods attribute, the sovereign currency country tends to prioritize its own interests, affecting the provision of global public goods. Second, the accumulation of fiscal and financial regulatory issues and internal structural contradictions in the sovereign currency country can spill over into global financial risks, potentially evolving into an international financial crisis. Third, in the event of geopolitical conflicts, national security considerations, or even war, the international dominant currency is easily weaponized.
Due to these issues, discussions on reforming the monetary system have increased internationally. Over the past decade, the driving force for changes in the international monetary system has mainly come from the economic and financial aspects following the international financial crisis, and related discussions have primarily focused on these areas; the current new round of discussions is more influenced by geopolitical factors. These discussions generally have two directions.
The first direction is how to reduce excessive reliance on a single sovereign currency and its negative impacts, forming a healthy competition and incentive mechanism among a few strong sovereign currencies. The diversification of the international monetary system is conducive to prompting sovereign currency countries to strengthen policy constraints, enhance the resilience of the international monetary system, and more effectively maintain global economic and financial stability. Recently, ECB President Christine Lagarde delivered a speech in which she stated that the global system based on multilateral cooperation is fracturing, the uncertainty of the dollar's dominant position is rising, and the euro is expected to play a more important role in the global monetary system.
In the past 20 years, the evolution of the international monetary system has two important characteristics. First, the euro was born in 1999 and currently accounts for about 20% of global foreign exchange reserves, second only to the US dollar. Second, after the 2008 international financial crisis, the international status of the renminbi has steadily risen. The renminbi has become the second-largest trade financing currency globally; on a comprehensive basis, it has become the third-largest payment currency globally; and in the International Monetary Fund (IMF) Special Drawing Rights (SDR) currency basket, its weight ranks third globally.
In the future, the international monetary system may continue to evolve towards a pattern where a few sovereign currencies coexist, compete, and balance each other. Whether a single sovereign currency or a few sovereign currencies serve as the international dominant currency, the sovereign currency countries need to assume corresponding responsibilities, strengthen domestic fiscal discipline and financial regulation, and promote structural economic reforms.
The second direction of discussion is the idea of a supranational currency serving as the international dominant currency, with the IMF Special Drawing Rights (SDR) being a prominent example. Former Governor of the People's Bank Zhou Xiaochuan raised this issue in 2009. Theoretically, SDR can better overcome the inherent problems of a single sovereign currency as the international dominant currency, possessing greater stability, better fulfilling the functions of global public goods, regulating global liquidity, and implementing crisis relief, thus having the characteristics of a supranational international currency.
However, the SDR faces challenges in becoming the international dominant currency, particularly in terms of insufficient international consensus and driving force at the political level, as well as the current market's scale, depth, and liquidity being inadequate, limiting its role. Promoting SDR to become the international dominant currency requires member countries to build political consensus, which is not easy in the current international environment. On the operational level, it is necessary to optimize the mechanism arrangements and gradually expand the use of SDR. Currently, the IMF allocates SDR mainly for crisis response, often through one-time large-scale issuances. In the future, regular SDR issuances can be increased, and the issuance scale can be expanded. In terms of usage, it is essential to actively promote the participation of the private sector and various market entities, widely use SDR in international trade and investment activities, issue bonds denominated in SDR, enhance the role of SDR as a reserve asset, and establish an SDR settlement mechanism suitable for large-scale use.
The second issue is about the cross-border payment system.
The cross-border payment system is the "artery" of global monetary funds, an important support for promoting international trade and investment, maintaining financial stability, and a crucial underpinning of the international monetary system. The evolution of the international monetary system towards a few sovereign currencies coexisting and the rapid development of digital technology will promote the diversification of the cross-border payment system; conversely, a diversified cross-border payment system will accelerate the transformation of the international monetary system.
In recent years, the problems faced by traditional cross-border payment systems have become increasingly prominent. First, there is a generational gap between traditional cross-border payment methods and emerging digital technologies, with issues such as low efficiency, high costs, and poor accessibility needing urgent improvement. Second, cross-border payments require coordination of different legal and regulatory frameworks and more stakeholders, and international cooperation needs to be strengthened. In response, international organizations such as the G20 have paid close attention and have specifically developed a roadmap to improve cross-border payments. Third, with the intensification of geopolitical games, traditional cross-border payment infrastructures are easily politicized and weaponized, used as unilateral sanction tools, undermining the international economic and financial order.
Against this backdrop, there is a growing global call to improve the cross-border payment system, with emerging payment infrastructures and settlement methods continuously emerging, driving the global cross-border payment system towards a more efficient, secure, inclusive, and diversified direction. This trend is expected to continue to strengthen in the future.
First, the cross-border payment system is evolving towards diversification. In terms of currencies, more and more countries and regions are using local currency settlements, promoting the international use of more currencies, and the dominance of a single sovereign currency in cross-border payments is gradually changing. In terms of channels, in addition to traditional correspondent banking models, new cross-border payment systems and regional multilateral payment systems are emerging, making settlement channels more diverse and further improving cross-border payment efficiency. After more than a decade of construction and development, China has initially established a multi-channel, widely covered cross-border payment clearing network for the renminbi.
Second, the interoperability of payment systems and ecosystems is continuously improving. More countries and regions are extending the operating hours of payment systems, adopting internationally standardized messaging, and promoting the interconnection of fast payment systems, thereby improving the efficiency of cross-border payments and reducing transaction costs. Countries and regions represented by Asia have significantly improved the interoperability of retail payment ecosystems through QR code payment interconnectivity, greatly facilitating residents' cross-border payments.
Third, emerging technologies are accelerating their application in the cross-border payment field. Emerging technologies such as blockchain and distributed ledger are driving the vigorous development of central bank digital currencies and stablecoins, achieving "payment equals settlement," fundamentally reshaping the traditional payment system, significantly shortening the cross-border payment chain, while also posing significant challenges to financial regulation. Technologies such as smart contracts and decentralized finance will continue to drive the evolution and development of the cross-border payment system.
The third issue is about the global financial stability system.
Before the 2008 financial crisis, the international community mainly relied on the global financial safety net led by the IMF for crisis response and post-crisis assistance. After the crisis, there was a further strengthening of financial regulatory rules and other preventive mechanisms.
On one hand, the multi-layered financial safety net continues to improve. In March of last year, I delivered a speech on strengthening the construction of the financial safety net at the Boao Forum for Asia. At the global level, in recent years, the IMF has continuously enhanced its crisis response capabilities, strengthened its policy oversight functions, and expanded the scope of policy supervision. At the regional level, the European Stability Mechanism, the Latin American Reserve Fund, the Chiang Mai Initiative in Asia, and the Arab Monetary Fund have been established successively, becoming important supports for financial stability in their respective regions. At the bilateral level, central banks of major developed economies such as the Federal Reserve and the ECB have injected liquidity into the market during crises through currency swap mechanisms. Cooperation on local currency swaps among emerging markets is also steadily advancing. Currently, the People's Bank has signed bilateral local currency swap agreements with more than 30 countries and regions, becoming an important part of the global financial safety net.
On the other hand, the crisis prevention system based on regulatory rules is continuously improving. After the financial crisis, the international community undertook a series of significant reforms to the global financial regulatory system, including the issuance of the Basel III Accord, enhancing the resilience of banking institutions, and strengthening the regulation of systemically important financial institutions. China has actively participated in the formulation and implementation of international financial regulatory standards and is one of the few economies to fully implement Basel III; it has established a regulatory framework for systemically important financial institutions, and all of China's systemically important banks have met the total loss-absorbing capacity standards; a deposit insurance system has been established, providing full protection for over 99% of depositors; and new asset management regulations have been introduced and fully implemented, significantly reducing shadow banking risks.
Currently, the global financial stability system is facing some new challenges.
First, the regulatory framework remains fragmented, and there is even a tendency for "competitive deregulation." Recently, the implementation of international regulatory rules such as Basel III has been influenced by domestic political factors in member countries, which may lead to regulatory arbitrage and weaken the global financial stability system. The international community should actively implement the agreed regulatory reform measures to prevent regulatory arbitrage and cross-border transmission of risks.
Second, there is insufficient regulation in some emerging areas such as digital finance. For example, there is inadequate global regulatory coordination for the rapidly expanding cryptocurrency market and climate risk-related regulatory frameworks, with regulatory orientations swinging significantly and being overly driven by politics; the application of artificial intelligence in the financial sector lacks unified regulatory standards. There is a need for global regulatory collaboration to address regulatory shortcomings.
Third, regulation of non-bank intermediaries remains weak. Over the past 20 years, the proportion of non-bank intermediaries in global financing has significantly increased. This type of financing is less stable, has lower transparency, and is characterized by rising leverage levels, necessitating strengthened regulation.
We believe that building a diversified and efficient global financial safety net centered around a strong International Monetary Fund, while maintaining the consistency and authority of global financial regulatory rules, is a key pathway for crisis prevention and resolution, and should continue to be the direction we pursue.
The fourth issue is about the governance of international financial organizations.
After World War II, the international community began with the IMF and the World Bank, gradually establishing a multi-layered and multi-dimensional system of international financial organizations that covers international policy coordination, financial regulatory rule-making, multilateral development institutions, and other areas, becoming the main institutional platform for international financial governance, playing an important role in promoting global economic and trade growth and maintaining global financial stability.
With the changes in the global economic landscape, the shares and voting rights of major international financial organizations such as the IMF and the World Bank, as well as some regional financial organizations, have long lacked substantial adjustments. The representation of emerging markets and developing countries is significantly lower than their actual position in the global economy. The international community should also pay attention to the fact that the unilateral policy orientation of certain member countries has interfered with and influenced the governance and operation of international financial organizations. International financial organizations need to advance governance reforms in a timely manner, dynamically reflecting the relative positions of member countries in the global economy, enhancing the voice and representation of emerging markets and developing countries, upholding and practicing true multilateralism, and improving governance efficiency.
Among various international financial organizations, the IMF occupies a core position and plays an important role in global economic and financial governance. The IMF is a quota-based international financial organization. The size of the quota determines the IMF's crisis response capacity, and the quota share determines the voting rights of member countries in the organization and the scale of financing they can access. Currently, the IMF's quota share does not reflect the relative positions of member countries in the global economy. According to the consensus reached, promoting adjustments to the quota share as soon as possible is key to improving the IMF's governance, enhancing its legitimacy, and increasing its representativeness.
Currently, the global economy faces high uncertainty. While improving governance structures, major international financial organizations should further strengthen their economic oversight functions, objectively assess the risks faced by the global economy and individual countries, and actively guide countries to firmly support economic globalization and the multilateral trading system. Strengthening policy guidance for various countries, enhancing macroeconomic policy coordination, and maintaining the stability of the international financial system are essential.
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