The world has more than enough reserves to restore financial stability, British Prime Minister Gordon Brown said on Wednesday, but a means needs to be found to unlock the funds and reassure reserves-rich nations. Speaking on the second leg of a three-continent tour to drum up support for the G20 summit in London next week, Brown said countries with high reserves, such as China, needed some form of insurance policy to protect them while encouraging them to lend.
"Weve got 7 trillion (dollars) of reserves around the world. Probably for the sake of financial stability you need maybe only half of these reserves. The rest can actually be far more effective in being used to get growth into your economies," Brown told an audience at the Wall Street Journal in New York. "If we could find an insurance policy which guaranteed for these countries action in the event of their currency being in difficulty, that in my view would satisfy half the problem that is being raised by China and Russia."
Brown did not offer more details on any such programme or insurance policy, but said such a scheme could be managed by the International Monetary Fund. China said earlier this month the world should consider developing the IMFs special drawing rights (SDR) as a super-sovereign reserve currency. Responding to this, US Treasury Secretary Timothy Geithner said on Wednesday he is "quite open" to the idea of increasing the use of SDRs.
Browns visit to the United States is the second of a five-day blitz ahead of the G20 on April 2 which has already taken in Europe and will move on to Latin America.
Keen to show that consensus is being reached ahead of the summit, which Brown hopes will produce a framework for global co-operation in responding to the crisis, the prime minister played down suggestions of rifts with his own central bank governor and with other leading economies.
DEBATE ABOUT STIMULUS Like the United States, Brown favours more measures to revive a world economy struggling with the worst downturn in 80 years. But some European countries oppose further stimulus and Mervyn King, the governor of the Bank of England, warned Brown on Tuesday that Britains soaring budget deficit meant it had to be cautious about any new fiscal stimulus plans. Brown played down talk of a rift with King and voiced confidence that the summit in London would reach agreement.
"What the issue is actually now is whether we are prepared, given what happens over the next few months, to do what is necessary to resume growth in the economy," Brown said. "I think if you put that question to Mervyn King he will say ... that weve got to be ready to take the action that is necessary to restore growth.
"In Britain we are doing it in three ways. We are doing it by interest rates being incredibly low, were doing it by our fiscal stimulus and we are doing it by - what is probably not yet understood by the public is one of the most effective and quicker ways of getting activity moving in the economy - by quantitative easing," he said.
"So if you take these three changes to the pattern over the last few months together that is where you will look for results in the combination of these three." Brown said nobody was suggesting that people came to the G20 meeting and put on the table their budget for the next year. Instead, he said, countries needed to look together at what they had done so far and think about how to take those plans forward.
Around $2.5 trillion of fiscal stimulus has been enacted around the world, Brown said, but co-ordination is needed and issues like quantitative easing and the impact of deep interest rate cuts also have to be taken into consideration.
"I see a consensus, not a disagreement on that," Brown said. Brown said that, in the short-term, deflation was a greater economic threat than inflation, but said central banks were prepared to act to spur economic activity. Noting that the European Central Bank had cut interest rates to 1.5 percent, he said: "My own expectation is they will bring them down further. I think every central bank is looking at non-standard ways of increasing activity in the economy."
Brown repeated his call for countries to avoid protectionism as a way to insulate themselves from the economic crisis. "I do believe the greatest danger that we face as trade starts to fall is countries will resort to protectionist measures that make a recovery even more difficult," he said.
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