Bretton Woods 2020 London International Model United Nations 21St Session | 2020

Bretton Woods 2020 London International Model United Nations 21st Session | 2020

London International Bretton Woods 2020 Model United Nations 2020

Table of Contents

TOPIC A: Reforming the International Trade Regime 7

Definitions 9

Timeline of Events 13

Discussion of the Problem 15

Bloc Positions 19

Conclusion 21

Questions a Resolution should answer: 22

Further Reading 38

Bibliography 39

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INTRODUCTION LETTER

Dear Delegates, Welcome to LIMUN 2020! Every year, LIMUN delivers some of the highest-quality Model UN debate in the country, and this year promises much the same.

We’re excited to be simulating the Bretton Woods Committee (2020), a novel simulation that, to our knowledge, has not been run in the UK MUN circuit. Our committee will give you the chance to research and engage with the structures that have held up the world order since 1945 – and which are being challenged in the tumultuous times in which we live.

We look forward to seeing you in February!

Best wishes, Your Chairing Team

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Director – Allen Haugh

Dear Delegates,

Welcome to LIMUN 2020! My name is Allen, and I’m a finalist studying Philosophy, Politics, and Economics at Oxford. I’ll have the pleasure of serving as your Director for the Bretton Woods Committee (2020).

I attended LIMUN for the last two years as a delegate and then as a chair; in that time, I’ve come to appreciate the professionalism of the conference and the high quality of debate that it entails. That said, LIMUN is some of the most fun I’ve had at an MUN conference; I’m looking forward to a similar experience this year!

Best wishes, Allen Haugh

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Assistant Director – Kevin Chuang Dear Delegates, Welcome to LIMUN 2020, and welcome to the Bretton Woods Committee 2020. My name is Sheng-Wei Kevin Chuang and I’ll be serving as your Assistant Director. Having attended LIMUN for the past two years as a delegate, I have a deep respect for LIMUN’s chairing and debate quality. As such, I strive to put my 40-some conference experience to use in creating an enjoyable debate that both challenges and helps you grow as delegates.

Bretton Woods Committee 2020 differs from other more ‘traditional’ committees as you are tasked to represent individuals who are current or former policymakers within the US government, or as select representatives of foreign governments. As such, beyond your commitments to your government and character’s values, you are to consider the interests and positions of the organizations that you’ve served in. Nonetheless, Bretton Woods 2020 seeks to tackle the vexing issues relating to international trade and monetary system. It is my hope that this committee offers you a challenging, yet stimulating debate, and greater insight into the behind-the-scenes political considerations that real-life policymakers face.

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Introduction to the Committee:

The Bretton Woods Committee is an American organisation that was founded in 1983 and was designed to be an “an organized effort to ensure that leading citizens spoke about the importance of the international financial institutions (IFIs)”1. The primary IFIs the group focused on were the two Bretton Woods Institutions – the IMF and World Bank – though the topics the Committee addresses have expanded to include broader development and economic themes.

The Committee has more than 650 members from academia, non-profits, businesses, and governments. It organizes conferences and seminars on the importance of economic cooperation and lobbies the US Congress on the same. As such, the Committee does not have a formal mandate beyond the ones it has set itself; nor does it any executive powers.

In this simulation, you will represent individual members of the Bretton Woods Committee. You will be charged with researching the organizations they are affiliated with and forming viewpoints on the topics in this guide. In committee, you will seek to form consensus viewpoints on the positions the Bretton Woods Committee should take, writing detailed position statements in lieu of formal resolutions.

1 About the Committee. (n.d.). Retrieved from https://www.brettonwoods.org/page/about-the- committee.

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TOPIC A: Reforming the International Trade Regime

London International Bretton Woods 2020 Model United Nations 2020

Introduction

With the rise of what is termed the “trade-investment-services” nexus2 and the diffusion of economic power to countries of the “Global South,” calls for reforming the international trade regime – rules, norms, and practices set forth by the World Trade Organization – is not a new phenomenon. As the Bretton Woods Committee – an American organization dedicated to ensuring the continued prominence and centrality of the Bretton Woods Institutions in the international economic order – delegates are in a unique position to examine ongoing systemic issues within the international trade regime from both the perspectives of individual American policymakers and select foreign representatives.

While the issues that confront the international trade regime is far- reaching, delegates are expected to focus on the issues that underlie the ongoing US-Chinese trade war. As such, this study guide will be oriented towards issues such as unfair trade practices, WTO structures and categorization system – this would entail a particular focus on: non-tariff protectionist policies, currency devaluation, dispute-settlement mechanisms, definitions of developing and developed nations, and the practice and future of special and differential treatment in relation to infant industry protection and ‘catching-up’ by developing nations.

Given the nature of this committee, the study guide will focus mostly on contextualising the aforementioned issues within the context of

2 Baldwin, R. (2011). 21St Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules. 21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules. World Trade Organization. Retrieved from https://www.wto.org/english/res_e/reser_e/ersd201108_e.pdf

London International Bretton Woods 2020 Model United Nations 2020 the US-China trade war. However, delegates are expected to expand their scope of analysis, to understand and evaluate these issues not just in the context of the US-China trade war, but also in relation to American- foreign trade relations/disputes. To note, this topic tasks delegates to consider the underlying issues that led to the trade war – that is, what are the merits to the American argument, are the Chinese pre-trade war policies justified, and what are the steps the WTO and its members can and should take to address these underlying issues?

Definitions Trade War A trade war is broadly defined as a large and sudden increase in tariffs charged on imported goods, followed by a subsequent tit-for-tat retaliatory tariff raises. As Goldman Sachs points out, a trade war is difficult to empirically define as tariff increases themselves do not constitute as a trade war, particularly if they are done in small but steady increments or are following WTO-sanctioned responses. 3 The significance of a trade war in this topic would be its definition and its resolution – delegates need to consider how can the WTO serve as a means to resolve the trade dispute?

Tariffs Broadly speaking, tariffs refer to “customs duties on merchandise imports,” which “gives give a price advantage to locally-produced goods over similar goods which are imported.” 4 While at the Uruguay Round of negotiations, member-states of the WTO have committed to cut tariffs and set their tariff rates at levels that are difficult to raise according to the “goods schedules that are part of the Uruguay Round” of negotiations,

3 Mandel, B., & Anderson, H. (2018, July 31). What is a trade war, and are we in one? Retrieved October 31, 2019, from https://am.jpmorgan.com/fi/institutional/library/what-is-a-trade-war. 4 World Trade Organization. (n.d.). Tariffs. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm.

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5 there are no legally binding agreement within the WTO to limit and/or cut tariffs.6 Most tariff limits are negotiated on a state-to-state level. Delegates should consider what are the measures to be taken to ensure states follow through on their Uruguay round commitments? What are possible changes to the WTO rules to ensure legally-binding agreements on tariff reductions can be conducted through the WTO?

Non-Tariff Barriers to Trade (NTB) Non-tariff barriers to trade are wide-ranging set of policies designed to prevent or limit the import or export of goods without the use of tariffs. Measures considered a part of NTBs include import quotas, subsidies, custom procedures, import licensing, rules of origin, and other legal or administrative processes that poses an obstacle to the free flow of goods and services. 7 There are three broad types of NTBs: protectionist measures, assistance measures, and non-protectionist measures. The latter refers mostly to NTBs that concern health and safety of citizens and environment. Protectionist NTBs include import quotas, procurement laws, and anti-dumping laws, which places foreign firms at a distinct disadvantage. Assistance NTBs include subsidies that encompass various sectors, and industry bailouts. The potency of NTBs is highlighted through the Chinese practice of joint ventures, whereby for foreign firms to operate in China, it must engage in a joint venture with a Chinese firm through which foreign technology must be transferred to the local Chinese firm.8 Delegates are expected to find ways to reduce NTBs, ameliorate disputes over what counts as protectionist NTBs (rather than non-protectionist NTBs) and measures in which the WTO can reduce and limit NTBs.

5 Ibid. 6 Ibid. 7 World Trade Organization. (n.d.). Understanding the WTO - Non-tariff barriers: red tape, etc. Retrieved October 31, 2019, from https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm. 8 Wernau, J. (2019, May 20). Forced Tech Transfers Are on the Rise in China, European Firms Say. Retrieved October 31, 2019, from https://www.wsj.com/articles/forced-tech-transfers-are-on-the-rise- in-china-european-firms-say-11558344240.

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Currency Manipulation Currency manipulation refers to the act of governments purchasing or selling foreign reserves on the foreign exchange (Forex) market with the goal of altering the exchange rate of a currency away from its equilibrium value. Currency manipulation plays into trade disputes primarily when a nation “devalues” its currency by purchasing additional foreign currency reserves; whereby higher supply leads to a depreciation in currency X. A depreciated, or weaker, currency X would enable country X’s exports to be more competitive, as its exported goods, priced in currency X, are ‘cheaper’ relative to other sources. Delegates should note that currency manipulation can also be indirect (i.e. the central bank can set the daily exchange rate of their currency within a certain band to limit fluctuations) and can also entail artificial appreciation, often done by to ensure currency stability. However, the importance of currency manipulation in this topic would be for delegates to determine how currency manipulators are designated (as exceedingly few nations fit the US Treasury’s currency manipulation criteria); what counts as currency manipulation (as we understand it – a negative phenomenon); and finally, how the WTO can reduce both the need for/act of currency manipulation.

Trade Deficit (Trade Balance) Balance of trade refers to an economic measure where the monetary value of trade exports is subtracted by the monetary value of trade imports. Balance of trade reveals whether an economy is importing or exporting more: if the balance of trade is positive, this indicates that the monetary value of trade exports exceeds that of trade imports, and vice versa. When a nation runs a trade deficit, this indicates that there is a net outflow of its currency (to pay foreign firms for their imported goods.) Trade imbalances are not necessarily negative, as a trade deficit could indicate a growing

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economy i.e. consumers have more income to buy foreign goods. 9 However, concerns regarding trade deficits are centred around its causes and implications: could trade deficits be a result of unfair trade practices carried out by its trading partners? Do cheaper imports affect domestic industries? Delegates are encouraged to focus on causes and implications of trade imbalances, and how IFIs can address these imbalances.

Special and Differential Treatment Special and differential treatment (SDTs) refer to provisions in the WTO agreements that give developing nations special privileges and more favorable treatment relative to other WTO members. 10 In the Doha Declaration, SDTs for developing nations included “longer time periods for implementing Agreements and commitments… provisions requiring all WTO members to safeguard the trade interests of developing countries…” 11 The debate for delegates to consider is whether existing SDTs go far enough to ensure developing nations are ‘catching-up’ to developed nations’ economic standards, but also conversely, how can the WTO be reformed to ensure that developed nations are substantively implementing SDTs? Delegates should consider whether SDTs are beneficial for negotiating multilateral agreements – as the existence of SDTs may disincentivize developed nations from agreeing to commitments made on an equitable basis, citing unfairness in obligation distribution.

Developed v. Developing Nations Developed and developing nations refer to a categorization of a country’s economic development status, and such designation affects its

9 McBride, J., & Chatzky, A. (2019, March 8). The U.S. Trade Deficit: How Much Does It Matter? Retrieved October 31, 2019, from https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does- it-matter. 10 World Trade Organization. (n.d.). Special and differential treatment provisions. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm. 11 Ibid.

London International Bretton Woods 2020 Model United Nations 2020 rights, privileges, and obligations. Currently, there are no WTO definitions on the benchmarks that define a developed or developing nations; instead, under the WTO system, states themselves declare whether they are developed or developing.12 For the purposes of this topic, delegates should consider these terms in relation to what are possible metrics to define developed or developing nations; and in absence of that, what mechanisms can the WTO develop and use to ensure that developing nation status is not being abused.

Timeline of Events October 1947 – General Agreement on Trade and Tariffs (GATT): In absence of other multilateral trade agreements, GATT represented the only international agreement/system that governs global trade 1986-1993 – Uruguay Round: negotiators from GATT members formed the WTO and added 123 countries as additional members. The Uruguay Round focused on reducing agricultural subsidies, lifting restrictions on foreign investments, opening previously closed market sectors such as banking and insurance, and increase protection for intellectual property. Allegations that the Uruguay Round focused excessively on increasing membership and neglecting the needs of developing member-nations exist. 1992 – US-China Memorandum of Understanding on Intellectual Property: the US-China MoU on IP protection was then hailed as one of the most significant agreements as it placed more stringent commitments on China to protect US intellectual property. However, the 1992 MoU failed to address its implementation mechanisms. Though China’s trademark, patent, and copyright laws offer nominal legal protection for IPs, its actual implementation is questionable, as evident with the lack of registration processes and education on what constitutes as IP theft, as well as notable

12 World Trade Organization. (n.d.). Who are the developing countries in the WTO? Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm.

London International Bretton Woods 2020 Model United Nations 2020 cases of counterfeit goods on e-commerce platforms and search engines such as Taobao and Baidu, which have links to the Chinese government.13 This IP issue sown the seeds of the recent US-China trade war. 1995 – WTO formed through the ratification of Marrakesh Agreement: the WTO replaces the GATT. The Marrakesh Agreement and WTO’s formation are notable in that it: 1, is an integrated, indivisible whole, i.e. one cannot be a party to an agreement without being party to all agreements; 2, supplemented the GATT with additional articles concerning technical barriers to entry and intellectual property protection; 3, negotiated legally-binding dispute settlement mechanisms.14 2001 – China joins the WTO: China’s entry to the WTO was a negotiated process, one that challenged US and global political considerations and Chinese ideological orientation (i.e. majority of Chinese economic sectors are heavily influenced by the government.) The US initially denied Chinese membership due to the Jackson-Vanik amendment, which conditioned US trade with China on certain human rights metrics that China failed to meet. China’s entry was only approved after the US Congress renewed China’s most-favored-nation (MFN) status contingent on human rights improvements, as well as China accepting harsher conditions than other developing nations, including greater liberalization of its economy and more stringent commitments to intellectual property protection. However, questions remain whether these harsher commitments are actually being met in practice in China. 2001-2008 – Doha Round: The Doha Round is the current round of negotiations for the WTO. The original agenda for the Doha Round included emphasizing on the needs of developing nations, reducing agricultural subsidies, enhancing intellectual property protection (under TRIPS),

13 Reuters. (2018, January 12). U.S. Puts Alibaba's Taobao on Blacklist for Counterfeit Products- Again. Retrieved October 31, 2019, from https://fortune.com/2018/01/12/alibaba-taobao-blacklist- counterfeit-products/. 14 World Trade Organization. (n.d.). Marrakesh Declaration of 15 April 1994. Retrieved October 31, 2019, from https://www.wto.org/english/docs_e/legal_e/marrakesh_decl_e.htm.

London International Bretton Woods 2020 Model United Nations 2020 opening of agricultural and manufacturing sectors, access to patented medicines, and the future of SDTs. The suspended Doha Round negotiations reflect the Global North-South divide on critical issues such as agricultural subsidies and market access and the issue of equity and feasibility of implementing the SDTs in full. 15 2018-ongoing – President Trump levies higher tariffs on imports: President Trump levied 10-25% tariffs on steel, aluminum and other products on nations such as Mexico, Canada, the EU, and China, sparking retaliatory tariff raises. President Trump increased agricultural subsidies to American farmers – a source of pre-existing contention. Though American tariffs on Canada, Mexico, the EU and other countries have ended following agreements to renegotiate existing trade agreements, the Trump Administration enacted a tit-for-tat tariff increase with China, sparking a trade war amidst Trump’s allegations of China’s ‘unfair trade practices.’ 2018-ongoing – US-China trade war: Following the initial 25% tariffs on steel, the US and China engaged in a tit-for-tat tariff increases, covering items from soybeans to shoes. Of note, China’s tariff increases have all been reciprocal to the US’, both in tariff rates and volume of trade covered. Negotiations have largely stalled as meetings have not produced substantive agreements. The US accuses China of ‘unfair trade practices’ including IP theft, non-tariff barriers to entry, and currency manipulation. Delegates should examine its underlying causes to find solutions to reform the existing trade regime.

Discussion of the problem Country to country disputes: trade and economic practices, currency manipulation and sovereignty?

15 World Trade Organization. (n.d.). The Doha Round. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

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Though trade disputes came to a head with the US-China trade war, these issues are far more entrenched and systemic than otherwise thought. These issues can be categorized into three separate, but intertwined points: trade and economic practices, currency manipulation, and sovereignty. Regarding trade and economic practices, certain policies such as the Chinese model of joint ventures for foreign firms to obtain a license to operate in China is seen as a mask for forcing foreign firms to transfer its technological innovations to Chinese firms. Conversely, critics can claim that the US’ use of quantitative easing (QE) policies have resulted in ‘competitive devaluation’ of the US dollar: US QE policies resulted in interest rate decreases, which prompted capital flight from the US into other nations – an act that drove exchange rates of foreign currency up relative to the US and creating a devalued US dollar without direct currency interference from the US Fed. 16 A similar complaint can be made from the Western perspective regarding China’s continued practice of state-owned enterprises (SOEs) or other nominally private industries that receive extensive state support (i.e. Tencent, Huawei etc.) – such practice, while part of China’s economic model, creates an unfair competition environment that disadvantages foreign firms given information and power asymmetry which are skewed in favour of Chinese firms. 17 However, delegates must be aware that resolutions to these issues would involve reforms and changes that often-times strike at the heart of a nation’s economic model and have widespread political ramifications. Regarding national economic models and policies, currency policy is another source of inter-national trade dispute – the most notable case

16 Lau, L. J. (2019, August 21). Currency manipulation? The US may have more to answer for than China. Retrieved October 31, 2019, from https://www.scmp.com/comment/opinion/article/3023593/currency-manipulation-us-may-have-more- answer-china. 17 Cook, S. (2019, March 28). Worried about Huawei? Take a closer look at Tencent. Retrieved October 31, 2019, from https://www.japantimes.co.jp/opinion/2019/03/28/commentary/world- commentary/worried-huawei-take-closer-look-tencent/#.XbojNEX7SA0.

London International Bretton Woods 2020 Model United Nations 2020 being the US designating China as a currency manipulator. However, the practice of currency devaluation to increase exports is widespread and often-times unchallenged. For instance, under Prime Minister Shinzo Abe, Japan’s central bank have purchased foreign bonds and debt to devalue the

Japanese Yen, which made its foreign exports more competitive. 18 Despite the fact that Japan doesn’t directly set exchange rates like China does, the argument that Japan is artificially devaluing its currency to grant an unfair advantage to Japanese exports can still be made. However, at the crux of all of these subtopics is the notion of sovereignty. Delegates must consider how the WTO can address these specific subtopics in inter-state disputes. Moreover, delegates must analyse how potential reforms to the international trade regime can be implemented and its practical feasibility in national ratification processes, particularly when these changes may challenge sovereign prerogatives in setting out economic and trade policies.

Structural Issues within the WTO? Some of the WTO’s structural issues came to light in the recent Doha Round. WTO, like many other IFIs, have often been accused of having a deliberation, negotiations, and implementation structure that privileges the developed economies. For instance, while the Doha Declaration contains SDTs that ostensibly supports developing economies in harmonizing their trade practices with WTO standards at a slower pace, WTO-sanctioned antidumping legislations (a NTB) have prevented this from taking place. Though dumping as a pricing strategy focuses on using below-market value prices to ‘injure’ domestic firms to establish a monopoly, in some cases it is difficult to ascertain whether the pricing strategy of a foreign import is of ‘fair market value.’ For instance, goods from China facing allegations of

18 Jennings, R. (2017, March 10). It's Not Quite China, But Japan Is Controlling Currency Prices To Help Exporters. Retrieved October 31, 2019, from https://www.forbes.com/sites/ralphjennings/2017/03/09/a-case-for-japan-as-asias-other-big-currency- manipulator/.

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‘dumping’ are not assessed using its market value in Chinese markets, but rather the US uses ‘analogous pricing’ by comparing the imported price with its hypothetical price in an ‘analogous’ market to China.19 The issue is that it doesn’t take into consideration the low production costs of Chinese goods, instead, Western standards are used to judge whether imports from the developing world are considered priced at ‘dumping’ levels, and these Western standards subsequently permit countervailing tariffs on these nations accused of dumping. 20 The lack of clarity around the timeframe of SDTs has allowed, in certain cases, WTO-sanctioned countervailing policies against developing economies to compel trade/market liberalization – an act that runs contrary to the spirit of the Doha Declaration and SDTs. On a similar note, the WTO’s focus on reducing and eliminating agricultural subsidies has been met with uneven implementation. In the negotiations for the Trans-Pacific Partnership agreement (TPP,) the US focused the removal of existing tariffs on American agricultural goods by TPP members and the reduction of TPP members’ subsidies to local agricultural producers, citing subsidies as a NTB – however, throughout the TPP and other related negotiations, the US refused to reduce/eliminate its agricultural subsidies. US NTBs that grant US exports an advantage have not faced much scrutiny by the WTO, while developing countries’ alleged NTBs have been closely examined. These few examples indicate a greater structural issue and question WTO impartiality and whether its structures are implicitly biased. 21

19 Johnson, B. (1992, July 21). A Guide to Antidumping Laws: America's Unfair Trade Practice. Retrieved October 31, 2019, from https://www.heritage.org/trade/report/guide-antidumping-laws-americas-unfair-trade- practice.

20 Bhagwati, J. (2005). Reshaping the WTO. Far Eastern Economic Review, 168(2), 25–30. doi: https://doi.org/10.7916/D8XK8N79

21Khor, M. (2000, January 28). Rethinking Liberalisation and Reshaping the WTO. Retrieved October 31, 2019, from https://www.iatp.org/sites/default/files/Rethinking_Liberalisation_and_Reshaping_the_WT.htm.

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Role of the WTO in dispute settlement and global economy The final consideration for delegates concerns a macro and systemic perspective: WTO’s role in dispute settlement. Dispute settlement in the WTO is done through the Dispute Settlement Board (DSB) of the WTO. In the existing model, the DSB process begins with consultation of involved parties, with the DSB only convening for a report when consultation fails. However, under the WTO’s Articles, a DSB’s final report must be unconditionally accepted by the parties, though parties are permitted to challenge the ruling and/or a reasonable period to implement DSB reports. The WTO’s DSB also allows for parties to ‘retaliate’ against one another should implementation of the DSB’s report by a member be incomplete. 22 Two points are key here: 1, the majority of cases have been won by developed nations (the US primarily); and 2, such model of dispute settlement have been reproduced, albeit without similar levels of oversight, transparency, and leniency as the WTO, in multilateral trade agreements. Regarding the latter, investor-state dispute settlements (ISDSs) have raised the possibility for non-state entities to sue national governments for alleged infringements of international trade agreements. When considering this issue, delegates consider what reforms can be done to the international trade regime to ensure that disputes can be settled without resorting to retaliatory trade wars, but also in a manner that respect national sovereignty and differing economic models and priorities.

Bloc Positions United States On currency manipulation, the US Treasury has published its criteria for designating a state as a currency manipulator. Though it has labelled

22 World Trade Organization. (n.d.). WTO Bodies involved in the dispute settlement process. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c3s1p1_e.htm.

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China as a currency manipulator, the US has historically been rather lenient on suspected currency manipulators as most of these nations are key US trading partners or allies. The current US policy on currency manipulation can be best described as: reducing currency manipulation to levels that don’t present an unfair advantage to exports coming into US markets. On tariffs and NTBs, the US has been vocal about trade partners’ use of NTBs and tariffs, calling them “unfair trade practices.” In a White House publication, the US highlighted three key practices it deems unfair: 1, high Chinese tariffs on American goods and NTBs relating to restriction certain US imports; 2, unfair subsidies, overproduction and subsequent dumping of Chinese steel, aluminium and other products in the US market; 3, Chinese NTBs relating to forced technological transfers, corporate espionage and outright theft of US firms’ IPs. 23 The US’ policies currently focus on using punitive tariffs to force a trade agreement with China in which these unfair practices are addressed, as this policy has found success with South Korea, Mexico, and Canada. China The Chinese position on this topic is rather interesting. Though China itself engages in many policies that violate, or comes close to violating, WTO Agreements (such as its NTB and currency policies,) in face of the US’ explicit use of tariffs to renegotiate trade agreements, China has taken a pro-trade position, casting itself as a defender of the existing trade regime. For instance, leading up to its proposal for WTO reform, Chinese officials have expressed willingness to abandon its developing nation status in exchange for genuine commitments to zero tariffs, zero barriers, and zero subsidies from developed nations.24 At the 2017 Davos World Economic

23 The White House. (2018, May 29). President Donald J. Trump is Confronting China's Unfair Trade Policies. Retrieved October 31, 2019, from https://www.whitehouse.gov/briefings- statements/president-donald-j-trump-confronting-chinas-unfair-trade-policies/. 24 People's Republic of China. (2019, May 13). CHINA'S PROPOSAL ON WTO REFORM. Retrieved October 31, 2019, from https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009- DP.aspx?CatalogueIdList=254127&CurrentCatalogueIdIndex=0.

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Forum, President Xi casted China as the defender of free trade – however, China’s past record has raised doubts, given China’s well-documented practices of NTBs, currency intervention, IP theft, and SOEs. 25

Developing Nations While varying in specific stances, developing nations within the WTO generally seek a series of reforms to the WTO system whereby SDTs are implemented fully – particularly since much of the SDTs are undermined through WTO-sanctioned Western policies forcing premature liberalisation. Similarly, developing economies seek clarity and actual implementation of the ‘reasonable timeframe’ clause in the Doha Declaration, whereby developing economies’ infant industries are allowed to mature prior to liberalization and facing competition from better organized and at times, state-subsidized, competitors. Another notable point advanced by developing nations is the impact of WTO DSB and ISDS mechanisms on local environmental protection and labour laws, as well as political sovereignty – to this end, developing nations generally hold policies that aims to reforming the WTO’s dispute-settlement mechanisms to make it more accessible, transparent, and impartial.

Conclusion Reforms to international trade regime are a long time coming – it represents the accumulation of decades-long disgruntlement between developed nations, dissatisfaction at a perceived power imbalance between developed and developing nations, and distrust between trading partners from discriminatory, yet discrete, NTBs. However, as laid out in the topic guide, reforming the international trade regime requires examination of a

25 Elliott, L., & Wearden, G. (2017, January 18). Xi Jinping signals China will champion free trade if Trump builds barriers. Retrieved October 31, 2019, from https://www.theguardian.com/business/2017/jan/17/china-xi-jinping-china-free-trade-trump- globalisation-wef-davos.

London International Bretton Woods 2020 Model United Nations 2020 whole range of topics, most of which are interlinked and poses a challenging nexus of economic, political, and legal issues. It is the desire of the chairs that delegates can avoid the impasse faced by real-life policymakers at the Doha Round, to examine the root causes of these issues, and negotiate a diplomatic resolution that reforms the international trade regime to better suit the changing trade landscape of the 21st century.

Questions a Resolution should answer:

❖ What roles can the WTO play in resolving trade wars or disputes? How can this role be expanded to preventing trade wars/disputes or accelerating its resolution, whilst ensuring that the WTO’s expanded role is acceptable to members? ❖ How can the WTO promote actual implementation of tariff reductions on an institution-wide level, rather than through bilateral or multilateral agreements? ❖ What is the WTO’s role in identifying, addressing and reducing NTBs? ❖ What is the WTO’s role in reducing the need for engaging in currency manipulation? How can the WTO reduce predatory currency manipulation while preserving national sovereignty and the stability of the trade system? ❖ What is the WTO’s role in addressing trade disputes that emerge from trade imbalances? How can the WTO address trade imbalances amongst its members and its underlying causes? ❖ How can the WTO restructure the SDTs to incentivise developed nations to agree to future equity-driven agreements, while ensuring that SDTs are actually fairly implemented to ensure developing economies’ growth, and that SDTs are not being abused? ❖ How can the WTO better designate developed and developing nations? How can the WTO ensure that these designations are fair and not being exploited for special privileges?

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Further Reading • The following sources detail the criteria in which the US Treasury designates currency manipulators and may be of interest to delegates considering how stringent these criteria are and how few times the label of currency manipulator has been assigned to trading partners. Full text: https://www.govtrack.us/congress/bills/100/hr4848/text and more specifically: https://www.treasury.gov/resource- center/international/exchange-rate-policies/Documents/authorizing- statute.pdf ● Though from a pro-trade, conservative think tank, this report offers delegates an in-depth look into how the US government evaluates trade practices for dumping and suggest areas in which US practices fall short of promoting free and fair trade. This is a valuable source for both the US delegates, as well as foreign representatives as it offers areas in which potential compromises can be explored. https://www.heritage.org/trade/report/guide-antidumping-laws-americas-unfair-trade- practice ● The 2018 US Trade Representative Report on China’s compliance with the WTO rules may be of interest to delegates as it focuses extensively on China’s NTBs practices and strikes a rather impartial tone. This is helpful for delegates to understand the exact practices used by China (in absence of a credible Chinese source) and the reasoning behind the US’ opposition (the document does go into brief detail about why China engages in some of the NTBs.) https://ustr.gov/sites/default/files/2018-USTR-Report-to-Congress-on-China%27s- WTO-Compliance.pdf ● Though not fully covered in the Study Guide, Richard Baldwin’s work on the “trade-investment-services” nexus should be of interest to delegates for greater understanding of why these issues and reforms are so difficult to achieve. Broadly speaking, Baldwin’s work details how the trade relations and network of the 21st century differs from the way we conceive it, particularly around how capital account liberalization contributed to the geographic fragmentation of production chains. https://www.wto.org/english/res_e/reser_e/ersd201108_e.pdf ● The East Asian Miracle, often held up by the IMF and WTO as successes of its free trade, trade/market liberalization model, can be interpreted as more a result of selective and extensive interventionist and protectionist policies. This source offers a good comprehensive guide to the policies undertaken by the East Asian governments. http://documents.worldbank.org/curated/en/975081468244550798 /pdf/multi-page.pdf

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● These two following sources highlight the arguments for infant industry protection, both from an empirical, economic perspective, and from a moral perspective. Delegates would get a better understanding of the arguments advanced by developing nations after pursuing these two sources: https://www.tandfonline.com/doi/abs/10.1080/1360081032000047 168 and Ha Joon Chang’s “The East Asian Development Experience: The Miracle, the Crisis and the Future.” ● The following two sources highlight the negative aspects of ISDS mechanisms, which drew inspiration from the WTO’s DSB. The study guide was limited in its discussion of the drawbacks of dispute settlement mechanisms, particularly around issues of national sovereignty and environmental/labor protection. These two sources should give delegates more insight into a vexing problem relating to an issue that is core in the current international trade regime. https://www.iisd.org/blog/how-investment-chapter-trans-pacific-partnership-falls- short and Occidental Petroleum v Ecuador (2012): Observations on Proportionality, Assessment of Damages and Contributory Fault. (can be found here: https://doi.org/10.1093/icsidreview/sit021)

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Bibliography Baldwin, R. (2011). 21St Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules. 21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules. World Trade Organization. Retrieved from https://www.wto.org/english/res_e/reser_e/ersd201108_e.pdf

Bhagwati, J. (2005). Reshaping the WTO. Far Eastern Economic Review, 168(2), 25– 30. doi: https://doi.org/10.7916/D8XK8N79

Cook, S. (2019, March 28). Worried about Huawei? Take a closer look at Tencent. Retrieved October 31, 2019, from https://www.japantimes.co.jp/opinion/2019/03/28/commentary/world-commentary/worried- huawei-take-closer-look-tencent/#.XbojNEX7SA0.

Elliott, L., & Wearden, G. (2017, January 18). Xi Jinping signals China will champion free trade if Trump builds barriers. Retrieved October 31, 2019, from https://www.theguardian.com/business/2017/jan/17/china-xi-jinping-china-free-trade-trump- globalisation-wef-davos.

Jennings, R. (2017, March 10). It's Not Quite China, But Japan Is Controlling Currency Prices To Help Exporters. Retrieved October 31, 2019, from https://www.forbes.com/sites/ralphjennings/2017/03/09/a-case-for-japan-as-asias-other-big- currency-manipulator/.

Johnson, B. (1992, July 21). A Guide to Antidumping Laws: America's Unfair Trade Practice. Retrieved October 31, 2019, from https://www.heritage.org/trade/report/guide- antidumping-laws-americas-unfair-trade-practice.

Khor, M. (2000, January 28). Rethinking Liberalisation and Reshaping the WTO. Retrieved October 31, 2019, from https://www.iatp.org/sites/default/files/Rethinking_Liberalisation_and_Reshaping_the_WT.h tm.

Lau, L. J. (2019, August 21). Currency manipulation? The US may have more to answer for than China. Retrieved October 31, 2019, from https://www.scmp.com/comment/opinion/article/3023593/currency-manipulation-us-may- have-more-answer-china.

Mandel, B., & Anderson, H. (2018, July 31). What is a trade war, and are we in one? Retrieved October 31, 2019, from https://am.jpmorgan.com/fi/institutional/library/what-is-a- trade-war.

McBride, J., & Chatzky, A. (2019, March 8). The U.S. Trade Deficit: How Much Does It Matter? Retrieved October 31, 2019, from https://www.cfr.org/backgrounder/us- trade-deficit-how-much-does-it-matter.

People's Republic of China. (2019, May 13). CHINA'S PROPOSAL ON WTO REFORM. Retrieved October 31, 2019, from

London International Bretton Woods 2020 Model United Nations 2020 https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009- DP.aspx?CatalogueIdList=254127&CurrentCatalogueIdIndex=0.

Reuters. (2018, January 12). U.S. Puts Alibaba's Taobao on Blacklist for Counterfeit Products-Again. Retrieved October 31, 2019, from https://fortune.com/2018/01/12/alibaba- taobao-blacklist-counterfeit-products/.

The White House. (2018, May 29). President Donald J. Trump is Confronting China's Unfair Trade Policies. Retrieved October 31, 2019, from https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-confronting- chinas-unfair-trade-policies/.

Wernau, J. (2019, May 20). Forced Tech Transfers Are on the Rise in China, European Firms Say. Retrieved October 31, 2019, from https://www.wsj.com/articles/forced- tech-transfers-are-on-the-rise-in-china-european-firms-say-11558344240.

World Trade Organization. (n.d.). Tariffs. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm.

World Trade Organization. (n.d.). Understanding the WTO - Non-tariff barriers: red tape, etc. Retrieved October 31, 2019, from https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm.

World Trade Organization. (n.d.). Special and differential treatment provisions. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm.

World Trade Organization. (n.d.). Who are the developing countries in the WTO? Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm.

World Trade Organization. (n.d.). Marrakesh Declaration of 15 April 1994. Retrieved October 31, 2019, from https://www.wto.org/english/docs_e/legal_e/marrakesh_decl_e.htm.

World Trade Organization. (n.d.). The Doha Round. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

World Trade Organization. (n.d.). WTO Bodies involved in the dispute settlement process. Retrieved October 31, 2019, from https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c3s1p1_e.htm.

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TOPIC B: Assessing the Reserve Currency System

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Introduction

The globalisation of commerce has been a defining feature of the world economy since 1945. As ever-increasing amounts of goods, capital and labour flow across borders, the economic and political infrastructure that underwrites this trade has grown ever more important.

The holding of foreign currency reserves has helped provide stability to the international trade and prevent balance-of-payments crises such as those that wracked Asia in 1997 and the Eurozone periphery in 201026. “Reserve currency” was synonymous with the US dollar at its inception, but the reserve currency system of today is also backed by a basket of currencies around the globe – and the system is sure to change in the future.

In the course of debating this issue, you will address a number of themes: the efficacy of the current reserve currency system, the currencies that make it up, and the role of the IMF in the global monetary infrastructure. From there, it will be up for you to make collective judgments and recommendations about what, if anything, had ought to be changed.

Our committee may end up deciding that the system is fine as is. It may decide it is in need of major reforms. Regardless of what we decide, though, debate on this topic should help to shed light on an obscure and poorly understood piece of financial infrastructure that is nonetheless critical towards the stability of the global economic order.

26 https://www.moneyandbanking.com/commentary/2018/6/24/sudden-stops-a-primer-on-balance-of-payments- crises

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Definitions Balance of Payments (BoP) A country’s balance of payments refers to the collective sum of transactions between a country (individuals, businesses, and the government) and the rest of the world for a given period.

The BoP is perhaps the key concept in this issue because it provides for a measure for the demand for a country’s currency outside that country compared to the country’s demand for foreign currencies.

Fixed and Floating Exchange Rates Exchange rate regimes vary from currency to currency and country to country. When exchange rates are fixed, they are tied to another currency or commodity, such as the US dollar or gold, respectively. When exchange rates are floating, the value of the currency fluctuates in response to market forces.

Foreign Currency Reserves: Foreign currency reserves are the assets held and used by a nation’s central bank for the purpose of responding to shocks in the BoP or to alter the valuation of a country’s currency (for instance, propping up the value of a currency when exports are low and the country is experiencing a large trade deficit.

Trilemma: Also known as the impossible trinity, the trilemma describes the trade- offs that countries are forced to make while formulating monetary policy.

According to the trilemma, countries can only choose two of27: - Free capital flows in and out of the country

27 https://www.economist.com/the-economist-explains/2016/09/09/what-is-the-impossible-trinity

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- A fixed exchange rate - Independent monetary policy In the case of China, for instance, the exchange rate is fixed and monetary policy is independent, and the trade-off is that capital cannot flow freely in and out of the country; attempts to loosen capital controls in 2016 were reversed after markets panicked28.

Timeline of Events 1944 – The Bretton Woods Conference Delegates from 44 countries come together to create a global monetary system for the post-war era. They design one that establishes, among other things, the IMF and World Bank29. They also effectively designate the US dollar as the world’s reserve currency, the main currency used to spend and save. The dollar’s value is tied to gold at $35/oz30; other countries then fix their currency’s values to the dollar.

While the global monetary system was designed in 1944 to allow currencies to be freely converted at fixed rates, war-torn European countries were allowed to impose currency controls so as to maintain reserves of dollars needed to import food, energy, and other necessities31. These controls were lifted in 1958, marking the official start of the Bretton Woods System.

1969 – The IMF launches the Special Drawing Right (SDR) Due to a shortage of gold and dollars to use as foreign exchange reserves, the IMF creates the SDR as a supplementary foreign reserve

28 Ibid. 29 https://www.npr.org/sections/money/2019/07/30/746337868/75-years-ago-the-u-s-dollar-became-the-worlds- currency-will-that-last 30 Ibid. 31 https://www.federalreservehistory.org/essays/bretton_woods_launched

London International Bretton Woods 2020 Model United Nations 2020 asset to ensure that the flow of payments and settlement of international trade is uninterrupted32. The SDR’s value was initially fixed as the gold equivalent of $1; each country’s allocation of SDRs is determined by that country’s IMF quota, which is designed to measure the relative position of the country in the world economy. SDRs can be exchanged for currency and are the IMF’s unit of account33.

August 1971 – The US ends the convertibility of dollars to gold As Europe and Japan rebuilt their economies in the 1960s, the American share of the world economy declined – along with demand for dollars. Heavy US spending on the military and foreign aid increased the supply of dollars faster than the supply of gold; eventually, the rest of the world held more dollars than the US had in gold, threatening the solvency of the exchange rate system34. Investors and central banks were moving to convert their dollars into gold the US did not have. In response, President Nixon ended the convertibility of the dollar to gold and implemented price controls. While this move temporarily slowed inflation, it marked the beginning of the end of the Bretton Woods System.

1973 – The Bretton Woods System collapses In response to the destabilising effect of the “Nixon Shock”, monetary authorities from developed countries met in an attempt to stabilize the Bretton Woods System. In response to market pressure, the delegates reach the 1971 Smithsonian Agreement – a plan to devalue the dollar by

8.5% against gold and 10.7% against foreign currencies, on average35. However, these efforts merely slowed the unwinding of the system. While

32 https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR 33 Ibid. 34 https://www.federalreservehistory.org/essays/gold_convertibility_ends 35 https://www.federalreservehistory.org/essays/smithsonian_agreement

London International Bretton Woods 2020 Model United Nations 2020 the dollar had been devalued to $38 per ounce of gold, the market price of gold had risen to $60 an ounce by 1972 and $90 an ounce by 1973.36

Despite the efforts of the delegates that negotiated the devaluation of the dollar in the Smithsonian Agreement, the system continued to break down. By 1973, major currencies were freely floated against each other. Since then, IMF members have been free to choose between fixed or floating currencies, along with other options such as forming participating in currency blocs like the Euro37.

1997 – Asian Financial Crisis East and Southeast Asia is struck by a financial crisis that originates in Thailand, which had pegged the Thai baht to the US dollar. Thailand had experienced significant current account deficits which amounted to nearly

8% of GDP by 199638; the government was unable to continue to maintain the fixed exchange rates due to a lack of currency reserves and was then forced to unpeg the baht, allowing it to float. The value of the baht almost immediately dropped 20% relative to the dollar and continued to fall further39.

The crisis in Thailand sparked a financial contagion that eventually spread to Malaysia, the Philippines, Indonesia, Singapore, and elsewhere in the region. In response, the IMF approved hundreds of billions of dollars in loans to the affected countries in exchange for structural reforms. While the crisis was largely resolved by 1999, the Asian economies saw their currencies significantly devalued and their economies as much as a third

36 Ibid. 37 https://www.imf.org/external/about/histend.htm 38 https://www.economist.com/finance-and-economics/2017/07/01/what-asia-learned-from-its-financial-crisis- 20-years-ago 39 https://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html

London International Bretton Woods 2020 Model United Nations 2020 smaller than they were before the crisis. The overall economic impact of the crisis was estimated at over $200 billion USD in 1998 alone40.

2016 – Renminbi is added to the IMF currency basket The value of IMF SDRs was equal to 1 dollar from 1969 to 1981, when the peg was replaced with a peg based on the dollar, yen, pound, franc, and German mark. The latter two were replaced with the Euro when it was launched in 1999. In 2016, the IMF announced that the Chinese yuan would be added into the currency basket, meaning it had determined that it was a “freely usable” currency – one that is widely used to pay for international transactions and is widely traded in currency exchanges41.

Discussion

Role of the dollar in the world economy While the dollar was only the world’s official reserve currency during the Bretton Woods era which ended in 1973, it still remains the backbone of the world’s currency reserves; as of 2018, 62% of all the foreign exchange reserves in the world were denominated in dollars; in contrast, the Euro represented 20% of reserves, the pound 5%, and the renminbi 2% 42. Approximately 90% of foreign exchange trades in 2019 involved the dollar as one of the currencies being traded43.

The widespread denomination of debt in dollars has important implications for the world economy. For one, it means that inflation and interest rates for the dollar are much more important outside the US than they would be otherwise; for instance, rising interest rates in the US will lead to borrowing costs increasing around the world because of the amount of dollar-

40 https://www.adb.org/publications/key-indicators-developing-asian-and-pacific-countries-2001 41 https://www.imf.org/external/np/exr/facts/sdrcb.htm/ 42 https://www.brookings.edu/wp-content/uploads/2019/09/DollarInGlobalFinance.final_.9.20.pdf 43 https://www.thebalance.com/world-currency-3305931

London International Bretton Woods 2020 Model United Nations 2020 denominated debt. This can be a major issue for governments that are deeply indebted; Argentina and Lebanon, for instance, have struggled with managing their dollar-denominated debt in the face of rising interest rates.

Role of cryptocurrencies as reserves

Debates over the future of the monetary order have been shaken by the introduction of cryptocurrencies such as bitcoin and tether, which have the potential for use as a universal currency independent of central banks or other governmental authorities. Perhaps the most visible among these is Facebook’s Libra, which will launch in 2020 and is pegged to a basket of the US dollar (50%), euro (18%), pound (11%), yen (14%), and Singapore dollar (7%)44.

While cryptocurrencies are unlikely to be taken on directly as a form of reserve currency, their adoption could have a number of effects. For one, their pegging relative to a basket of currencies (or on nothing at all, in the case of bitcoin) could help shield against the volatility of currency fluctuations, such as the Brexit-related swings in the value of the pound since 2016. Further, widespread adoption of cryptocurrencies as a means of exchange could provide a backdoor route towards de-emphasizing the importance of the dollar in international commerce; after all, if there people could buy libra with any of the currencies in its basket, for instance, it would place less pressure for the eurozone, Japan, Britain, and Singapore to acquire dollars when they could simply exchange their own currencies for them. Whether these effects are positive or negative developments is a matter of perspective.

It should be noted that while cryptocurrency projects as of yet have been developed independent of central banks, this is not fundamental to the

44 https://www.barrons.com/articles/facebook-libra-currency-will-be-tied-to-the-us-dollar-51569265722

London International Bretton Woods 2020 Model United Nations 2020 concept. Bank of England governor Mark Carney, for one, has called for nations to come together and develop a digital currency that would replace the dollar in reserves 45 . His justification was that developing such a currency would free up the trillions of dollars that countries are currently holding in reserves, reducing the costs of borrowing and encouraging investment. Role of cryptocurrencies as reserves Debates over the future of the monetary order have been shaken by the introduction of cryptocurrencies such as bitcoin and tether, which have the potential for use as a universal currency independent of central banks or other governmental authorities. Perhaps the most visible among these is Facebook’s Libra, which will launch in 2020 and is pegged to a basket of the US dollar (50%), euro (18%), pound (11%), yen (14%), and Singapore dollar (7%)46.

Bloc Positions

United States The dominance of the dollar in foreign reserves is reflective of the fact that the United States is seen as among the safest creditors in the world; the US government has never defaulted on its debt, save for a few minor incidents in the 20th century47 and political risks in recent times. Other contributing factors include the size of the US economy and financial markets.

The US experiences both costs and benefits as a result of the incumbent position of the dollar. Because demand for dollars is global, the US government is able to borrow at much lower interest rates than it would

45 https://www.theguardian.com/business/2019/aug/23/mark-carney-dollar-dominant-replaced-digital-currency 46 https://www.barrons.com/articles/facebook-libra-currency-will-be-tied-to-the-us-dollar-51569265722 47 https://fas.org/sgp/crs/misc/R44704.pdf

London International Bretton Woods 2020 Model United Nations 2020 otherwise. The fact that there are more dollar-denominated transactions also means that there is greater liquidity in the financial market, making asset pricing more accurate and increasing the availability of credit to American firms.

On the other hand, the US experiences large and persistent trade deficits; this deficit is exacerbated by the dollar’s role as a reserve currency. This is because of an inherent tension between American monetary policy’s impacts at home and abroad, a phenomena known as the Triffin Paradox. The paradox states that the foreign demand for dollars places pressures on the US to run a trade deficit so that dollars are flowing to other countries; this runs counter to the cheap borrowing which is meant to be the key benefit of having the dollar as a reserve currency48. Further, this is a sort of sovereignty issue; because American monetary policy has much broader reverberations than other countries’, the US wields a degree of influence over those countries’ fiscal positions, particularly those who have pegged their currency to the dollar.

China and Russia It should come as no surprise that China and Russia have actively sought to challenge American hegemony in the monetary space. Both countries called for the replacement of the dollar as a reserve currency as early as

20094950. China in particular has sought to move aggressively in challenging the status of the dollar; this may be explained in part by the volume of trade between China and the US, along with the over $3 trillion USD it holds in foreign exchange reserves51, significantly more than any other country.

48 https://www.investopedia.com/financial-edge/1011/how-the-triffin-dilemma-affects-currencies.aspx 49 https://www.nytimes.com/2009/03/24/world/asia/24china.html 50 https://www.nytimes.com/2009/06/06/business/global/06ruble.html 51 https://www.reuters.com/article/us-china-economy-forex-reserves/chinas-august-forex-reserves-rise-to-3- 1072-trillion-idUSKCN1VS02L

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Other Countries While the primary tension in this area is arguably between the US and China, there are other actors with their own interests. These include the Eurozone, Britain, and Japan, whose currencies see some use in international trade, and minor countries whose primary current monetary concern is maintaining a balance of payments favourable enough to keep a stock of dollars in reserve.

Conclusion The reserve currency system is one that doesn’t get much attention until it has failed in some way; when it does so, the impacts can be profound and cause great economic, political, and social instability as trade breaks down.

While the topics addressed here are very abstract, their human impact should not be overlooked. The 1997 Asian Financial Crisis led to a 40% increase in suicide rates52, and scores more lost their jobs, homes, and livelihoods. It may be helpful in the course of both research and committee debate to mete out the impacts that proposed changes will have for all stakeholders: the global order, nations, businesses, and individuals.

As you go about conducting research on this topic, consider the crises which have happened in the past and are currently unfolding. Think about what could have been done to prevent these issues, and where the response to the crisis in motion fell short. Which of these flaws, if any, were systemic? And to the extent that they were, what changes can be made to be done about it?

52 https://www.ncbi.nlm.nih.gov/pubmed/19200631

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Questions a Resolution should answer:

❖ What role should the IMF play in regulating the reserve currency system? ❖ Should the current system of reserve currencies be maintained? ❖ Should the composition of the basket of reserve currencies, or the means by which the basket is determined, be changed? ❖ What role, if any, should cryptocurrencies or other assets play in forming currency reserves?

Further Reading ● This is a review of a book, Benn Steil’s The Battle of Bretton Woods. There is no way to link to a book, but reading it is highly recommended. The book details the deliberations behind the Bretton Woods Conference and the process which led to the dollar being adopted as the global reserve (which was by no means guaranteed). https://www.forbes.com/sites/johntamny/2013/03/31/keynes- white-and-the-battle-of-bretton-woods/#3603afb15e58 ● This is a more in-depth overview of the Asian Financial Crisis of 1997, explaining how the crisis unfolded from its foundations to final resolution. The Crisis is perhaps the most vivid example we have of the consequences of poor monetary management. https://www.federalreservehistory.org/essays/asian_financial_crisis ● This is a transcript of Mark Carney’s full remarks at this year’s Jackson Hole meeting of central bankers which were alluded to earlier in this guide. It provides a strong overview of the challenges facing the global monetary order, along with some proposals (note the biases inherent in them, as Carney serves as the governor of the Bank of England. https://www.bankofengland.co.uk/-

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/media/boe/files/speech/2019/the-growing-challenges-for- monetary-policy-speech-by-mark-carney.pdf ● This is a report from the US Congressional Research Service providing an in-depth report on the Argentinian financial crisis, which began in 2017 and is continuing to unfold. https://fas.org/sgp/crs/row/IF10991.pdf ● This is an IMF paper exploring the links between exchange rate policy and the 2008 financial crisis, identifying some causal links. https://www.imf.org/external/np/res/seminars/2010/paris/pdf/obstf eld.pdf

Bibliography ● Amadeo, K. (2019, August 19). Why the US Dollar Is the Global Currency. Retrieved from https://www.thebalance.com/world- currency-3305931. ● Asian Development Bank. (2017, November 27). Key Indicators of Developing Asian and Pacific Countries 2001. Retrieved from https://www.adb.org/publications/key-indicators-developing-asian- and-pacific-countries-2001. ● Barboza, D. (2009, March 24). China Urges New Money Reserve to Replace Dollar. Retrieved from https://www.nytimes.com/2009/03/24/world/asia/24china.html. ● Chang, S.-S., Gunnell, D., Sterne, J. A. C., Lu, T.-H., & Cheng, A. T. A. (2009, April). Was the economic crisis 1997-1998 responsible for rising suicide rates in East/Southeast Asia? A time-trend analysis for Japan, Hong Kong, South Korea, Taiwan, Singapore and Thailand. Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/19200631. ● Cecchetti, S., & Schoenholtz, K. (2018, June 25). Sudden Stops: A Primer on Balance-of-Payments Crises. Retrieved from

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https://www.moneyandbanking.com/commentary/2018/6/24/sudde n-stops-a-primer-on-balance-of-payments-crises. ● China's August forex reserves rise to $3.1072 trillion. (2019, September 7). Retrieved from https://www.reuters.com/article/us- china-economy-forex-reserves/chinas-august-forex-reserves-rise- to-3-1072-trillion-idUSKCN1VS02L. ● Ghizoni, S. K. (n.d.). Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls. Retrieved from https://www.federalreservehistory.org/essays/gold_convertibility_e nds. ● Hetzel, R. L. (n.d.). Launch of the Bretton Woods System. Retrieved from https://www.federalreservehistory.org/essays/bretton_woods_launc hed. ● Humpage, O. (n.d.). The Smithsonian Agreement. Retrieved from https://www.federalreservehistory.org/essays/smithsonian_agreem ent. ● IMF. (n.d.). The end of the Bretton Woods System (1972–81). Retrieved from https://www.imf.org/external/about/histend.htm. ● Inman, P. (2019, August 23). Mark Carney: dollar is too dominant and could be replaced by digital currency. Retrieved from https://www.theguardian.com/business/2019/aug/23/mark-carney- dollar-dominant-replaced-digital-currency. ● Kramer, A. E. (2009, June 5). Russian Warns Against Relying on Dollar. Retrieved from https://www.nytimes.com/2009/06/06/business/global/06ruble.htm l. ● Prasad, E. (2019, September 19). Has the dollar lost ground as the dominant international currency? Retrieved from https://www.brookings.edu/research/has-the-dollar-lost-ground-as- the-dominant-international-currency/.

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