IBS AHEMEDABAD

Project on G 20

Nishant Bali
3/6/2009
6 April 2009

Introduction:-
The G-20 in an informal group of world leaders that come together annually to discuss
global economic stability and strengthen global financial cooperation. The G-20 was
created after the international financial crises led by developing countries in the 1990's.

The G-20 is a group of finance ministers and central bank governors from 20
economies: 19 of the world's largest national economies, plus the European Union (EU).
Collectively, the G-20 economies comprise 85% of global gross national product, 80% of
world trade (including EU intra-trade) and 2/3 of the world population.

The G-20 is a forum for cooperation and consultation on matters pertaining to the
international financial system. It studies, reviews, and promotes discussion among key
industrial and emerging market countries of policy issues pertaining to the promotion of
international financial stability, and seeks to address issues that go beyond the
responsibilities of any one organization.

Members of G-20:-
In 2009, there are 20 members of the G-20. These include the finance ministers and
central bank governors of 19 countries:

Argentina Mexico
Australia Russia
Brazil Saudi Arabia
Canada South Africa
China South Korea
France Turkey
Germany United kingdom
India United States
Indonesia
Italy
Japan
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In addition to these 20 members, the following forums and institutions, as represented

by their respective chief executive officers, participate in meetings of the G-20

International monetary fund

World Bank
International Monetary and Financial Committee
Development Committee of the IMF and World Bank

Locations of G-20 meetings

Year Location

1999 Berlin, Germany

2000 Montreal, Canada

2001 Ottawa, Canada

2002 Delhi, India

2003 Morelia, Mexico

2004 Berlin, Germany

2005 Beijing, China

2006 Melbourne, Australia

2007 Cape Town, South Africa

2008 Sao Paulo, Brazil

2009 London, UK

Sources: www.wikipedia.com
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Protest before the G20 meeting (28 March, 2009)

On 28 March, 2009 there was mass protest against the G20. Some 10,000 protestors
have gathered in London to stage a series of demonstrations before and during the April
2 G-20 summit to be attended by world leaders.

Why the protest?

There better future and job safety.

Create an economy, where fair distribution of wealth is there.
Decent jobs for all UK citizens.
And, low carbon futures (make the planet green).
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2009 G-20 London Summit Highlights

Each year the G-20 writes a report on their findings, known as the Communiqué. The
April 2nd, 2009 talking points found in the Communiqué are as:-

• Strengthen financial regulation.

• Restore confidence in the economy, produce growth and jobs.
• Promote global trade and investment while rejecting protectionism.
• Build and inclusive, green and sustainable recovery.
• Repair the financial system.

Steps taken by G-20 members:-

G-20 members agreed on the immense step to recover the despair economy by
agreeing on $1 trillion and to restore credit, growth and jobs.
G-20 members agreed on raising $500 billion IMF resources to $750 billion, the
fund can make available to countries worst hit by the global crisis.
The group also agreed to authorize the Multilateral Development Bank (MDB) to
lend an additional $100 billion, as well as increase support of trade finance to
$250 billion, and use additional resources from gold sales to finance the poorest
countries.
Limits on hedge funds, executive pay, credit-rating companies and risk-taking by
banks.
China and Russia proposed replacin g the dollar as the world ’s main
res erv e cu rrency wi th a proposed to change the US dollar as the world
currency and instead of that use the SDR (special drawing right).
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China proposed replacing the dollar as the world’s

main reserve currency?

China’s central bank governor, Zhou Xiaochuan, offered a bold proposal to overhaul the
global monetary system and replace the Greenback (dollar) with the IMF SDR (Special
Drawing Right).

What are the reasons?

The outbreak of the [credit] crisis and its spillover to the entire world reflected
the … systemic risks in the existing international monetary system.
Whole world needs the international reserve currency to secure global financial
stability and facilitate world economy growth.
When the use of currency (greenback) as the exchange rate which itself is in the
grip or the parent of such crisis, would definitely not create any stability.
The other su gges ted w as that the chan ge wou ld not on ly eliminate
the risks associ ated wi th paper “fi at” c u rrenci es , su ch as the d ollar
and pou nd – which are back ed on ly by the c redi t of the issu ing
cou ntry , rather than by g old – bu t wou ld mak e i t p ossible to
manage global liqu idity and imbalanc es more effec tiv ely .
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What is a Special Drawing Right (SDR)

“The SDR (Special Drawing Right) is an artificial "basket" currency used by the IMF
(International Monetary Fund) for internal accounting purposes”. The SDR is also used
by some countries as a peg for their own currency, and is used as an international
reserve asset.

At present, the currencies in the basket are, by weight, the United States dollar, the
Euro, the Japanese yen, and the Pound sterling. Holders of SDRs can obtain these
currencies in exchange for their SDRs in two ways: first, through the arrangement of
voluntary exchanges between members; and second, by the IMF designating members
with strong external positions to purchase SDRs from members with weak external
positions.

What is the value of an SDR?

January 1981-December 1986

ISO Currency Weight Value
GUSD US Dollar 42% $ 0.540
DEM German Mark 19% DM
0.460
JPY Japanese Yen 13% ¥ 34.0
FRF French Franc 13% F 0.740
GBP British Pound 13% £ 0.0710

January 1986-December 1990

ISO Currency Weight Value
GUSD US Dollar 42% $ 0.540
DEM German Mark 19% DM
0.460
JPY Japanese Yen 15% ¥ 34.0
FRF French Franc 12% F 0.740
GBP British Pound 12% £ 0.0710
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January 1991-December 1995

ISO Currency Weight Value
GUSD US Dollar 40% $ 0.540
DEM German Mark 21% DM
0.460
JPY Japanese Yen 17% ¥ 34.0
FRF French Franc 11% F 0.740
GBP British Pound 11% £ 0.0710

January 1996-December 1998

ISO Currency Weight Value
GUSD US Dollar 39% $ 0.540
DEM German Mark 21% DM
0.460
JPY Japanese Yen 18% ¥ 34.0
FRF French Franc 11% F 0.740
GBP British Pound 11% £ 0.0710

January 1999-December 2000

ISO Currency Weight Value
GUSD US Dollar 39% $ 0.540
DEM German Mark 32% DM
0.460
JPY Japanese Yen 18% ¥ 34.0
GBP British Pound 11% £ 0.0710

January 2001-December 2005

ISO Currency Weight Value
GUSD US Dollar 44% $ 0.540
DEM German Mark 31% DM
0.460
JPY Japanese Yen 14% ¥ 34.0
GBP British Pound 11% £ 0.0710
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January 2006-December 2010

ISO Currency Weight Value
GUSD US Dollar 44% $ 0.540
DEM German Mark 34% DM
0.460
JPY Japanese Yen 11% ¥ 34.0
GBP British Pound 11% £ 0.0710
Sources: Www.Newsdaily.Com

SDR valuation

Initially, the value of the SDR was defined in terms of one US-$, which in turn was
defined in terms of an ounce EXAMPLE: of gold: $35/oz until. Since July 1974 the SDR
has been defined in terms of a basket of currencies. This basket consisted initially of 16
currencies and was reduced to 5 in 1981, and now it reduced to 4.

It is calculated as the sum of specific amounts of the four currencies valued in U.S.
dollars, on the basis of exchange rates quoted at noon each day in the London market.
When the London market is closed, noon rates in the New York market are used The
basket composition is reviewed every five years to ensure that it reflects the relative
importance of currencies in the world's trading and financial systems.

How to calculate the value of SDR

To calculate the value of SDR, first summation of all the value of the four currencies and
convert it in US dollar on the basis of exchange rate which quoted at noon in the London
market. And by doing this we get the value of SDR.