The Geithner-Zhou Connection

The Group of Thirty is an influential association of international financiers, economists and central bankers. They meet privately twice a year to discuss foreign exchange, central banks, international capital markets, international financial institutions and economic-supervisory issues. At the initiative of the Rockefeller Foundation, the group started in 1978 by Geoffrey Bell, one time assistant to Lord Richardson of Duntisbourne and Governor of the Bank of England. The predecessor to the Group of Thirty was the Bellagio Group, which was formed by Austrian economist Fritz Machlup.

The current chairman of the Group of Thirty is Paul Volcker, former Chairman of the Board of Governors of the Federal Reserve in Washington. He was the architect of switching to high interest rates in the 1980’s in order to stop rampant inflation.

Zhou Xiaochuan is a member of the Group of Thirty and so is Timothy F. Geithner, President of the Federal Reserve Bank of New York and has just been picked as the U.S. Secretary of Treasury in the forthcoming Obama administration. Zhou hosted the group’s April, 2007 meeting in Hangzhou, China which assembled several speakers including Guo Shuqing, Chairman of China Construction Bank Corporation, Hu Xiaolian, Deputy Governor of PBoC and the chief of the State Administration of Foreign Exchange, which is in charge of China’s $ 2 trillion reserves, Qian Yingyi, Dean of the School of Economics and Management at Tsinghua University, Yu Yongding, Director, Institute of World Economics and Politics at the Chinese Academy of Social Sciences, Chen Yuan, President of China Development Bank and Lu Zushan, Governor Zhejiang Province.

The Group of Thirty has recently published a 249-page- US$95 report entitled The Structure of Financial Supervision: Approach and Challenges in a Global Marketplace. This report discusses supervision principles, instability, rescues, and independence. The report started in July, 2007 with a 17-jurisdiction review of financial regulations, saying “Today, those issues are even more salient and important for national and international financial supervisors and policymakers as they seek to restore financial stability…We hope it will contribute to the international dialogue on the key matter of supervisory architecture.”

This was one of the themes in the meeting of political leaders in Washington on November 15, 2008. It identified the root causes of the current crisis to include “Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.”

Will China receive a greater voice in the international monetary system and in the regulation of financial system? The answer is clearly yes. Zhou is in step with the Group of Thirty’s report on The Structure of Financial Supervision when he said in April of this year at the Seventeenth meeting of the International Monetary and Financial Committee of the International Monetary Fund: “Being at the centre of the financial crisis, the major advanced economies need to take the primary responsibility for stabilizing global financial markets. They need to adjust their monetary, fiscal, and financial policies in a timely manner without sabotaging medium and long-term economic and financial stability while improving supervision and transparency.”

As Geithner and Zhou already have a close relationship due to their mutual membership in the Group of Thirty, as Geithner has lived in China and studied Chinese, as Geithner has been intimately involved with the Bush Administration’s $700 billion rescue plan for financial institutions, as both Zhou and Geithner have strong relations with Paul Volcker who is an economic adviser to President-Elect Obama, as Geithner has been picked to be Secretary of Treasury under President-Elect Obama and as Zhou wants improved supervision of the financial system and as the Group of 20 political leaders have the same aspirations as Zhou, the evidence is strong for China’s leading role in forthcoming monetary developments.

Any questions??