G20 Leaders Research Articles

Mandatory clearing: the infrastructural authority of central counterparty clearing houses in the OTC derivatives market

This study examines the role of central counterparty clearing houses (CCPs) in the over-the-counter (OTC) derivatives market. To achieve this goal, this paper introduces the notion of infrastructural authority. The notion of infrastructure, borrowed from Science and Technology Studies, is employed to locate a form of private authority stemming from how power and legitimacy are exercised by enabling the performance of specific functions in financial markets. As OTC derivatives had become widely discredited after the crisis, regulators had come under strong pressure to reform what had grown to be a systematically important segment of the global financial system. G20 leaders thus responded in 2009 by pledging to make the central clearing of standardized OTC derivatives mandatory to improve financial stability. Therefore, this study argues that the infrastructural authority of CCPs is politically contingent, originating from the statutory requirement of mandatory clearing in the OTC market. However, by reviewing specific moments in financial history, this study concludes that the infrastructural authority of CCPs may actually destabilize financial markets, undermining the G20’s original intent to strengthen systemic stability. More generally, the research conducted in this study provides evidence of the changing nature of authority in financial markets following the 2007–2008 financial crisis.

The G20 and development assistance for health: historical trends and crucial questions to inform a new era

One of the most important gatherings of the world's economic leaders, the G20 Summit and ministerial meetings, takes place in June, 2019. The Summit presents a valuable opportunity to reflect on the provision and receipt of development assistance for health (DAH) and the role the G20 can have in shaping the future of health financing. The participants at the G20 Summit (ie, the world's largest providers of DAH, emerging donors, and DAH recipients) and this Summit's particular focus on global health and the Sustainable Development Goals offers a unique forum to consider the changing DAH context and its pressing questions. In this Health Policy perspective, we examined trends in DAH and its evolution over time, with a particular focus on G20 countries; pointed to persistent and emerging challenges for discussion at the G20 Summit; and highlighted key questions for G20 leaders to address to put the future of DAH on course to meet the expansive Sustainable Development Goals. Key questions include how to best focus DAH for equitable health gains, how to deliver DAH to strengthen health systems, and how to support domestic resource mobilisation and transformative partnerships for sustainable impact. These issues are discussed in the context of the growing effects of climate change, demographic and epidemiological transitions, and a global political shift towards increasing prioritisation of national interests. Although not all these questions are new, novel approaches to allocating DAH that prioritise equity, efficiency, and sustainability, particularly through domestic resource use and mobilisation are needed. Wrestling with difficult questions in a changing landscape is essential to develop a DAH financing system capable of supporting and sustaining crucial global health goals.

The new OTC derivatives landscape: (more) transparency, liquidity, and electronic trading

Inspired by recent papers of Hull (Financ Stab Rev 14(July):71–80, 2010; J Deriv 20(1 (Fall)):26–29, 2012; J Financ Eng 1(3 (September)):1–8, 2014) on the topic, this note provides an overview of the OTC derivatives reform proposed by the G20 leaders in September 2009 as a response to the recent subprime crisis. The goal is to describe the major different legislations approved, and in some cases implemented, around the world (with a particular focus on US and Europe), and how this structural change in the OTC derivatives market will affect the way financial and non-financial firms operate. The main takeaway of this note is the (evolving) regulatory landscape will definitely push for the standardization of OTC products over time, implying a more transparent, liquid, and simpler OTC derivatives market. However, bespoke OTCs will still play a significant role in the market, simply because plain vanilla OTC instruments and exchange-traded derivatives (Futures, for example) are less suitable for hedging purposes. The structure of the OTC derivatives market will change in the next years. Firms around the world should be prepared to navigate a fast moving market and regulatory landscape.

China’s Quest for Global Economic Governance Reform

This paper attempts to characterize China’s approach to global economic governance during the Xi Jinping era, and to provide details on how it is playing out. One finding is that China has moved away from the period of “hiding one’s strength and biding one’s time” and is now acting in a more norm-making and agenda-setting role in which it is seeking largely incremental change. Another finding is that China is doing these things through a variety of global governance forms such as inter-governmental organizations with a fairly highly degree of formality, looser international organizations that have weaker implementation capacity and unilateral initiatives which put China very much in a leadership position. Findings are based on an examination of major activities of the Xi period, including hosting the G20 leaders’ summit in Hangzhou, China, joint creation of new multilateral development banks, and the Belt and Road Initiative. The paper also touches on motives for China’s activities, including hedging against adverse developments in the international system, greater wealth, and a global power vacuum that has arisen with the rise of nativist and populist movements in the West, and possible constraints to the realization of China’s objectives such as slowing domestic economic growth and a backlash against China’s globalization, which could intensify.

Who pays? Who gains? Central counterparty resource provision in the post-Pittsburgh world

At the Pittsburgh Summit in 2009, G20 leaders agreed to wide-reaching reforms to over-the-counter (OTC) derivatives markets. One of these reforms required the clearing of standardized OTC derivatives through central counterparties (CCPs). Since then, CCPs have become increasingly important. There has been an extensive programme of regulatory change affecting CCPs, OTC derivatives markets and their participants. As OTC clearing has grown, tension has increased between different classes of market participants over the traditional CCP model of resource provision through loss mutualization. We argue that most of this tension can be explained by a misalignment between the policy goal of enhancing financial stability and the delivery of that goal by mandating clearing through CCPs as they are currently organized. Specifically, the traditional model for resource provision makes most CCPs suitable for managing “club goods”, whereas financial stability is a “public good”. The key differences between these two types of goods, driven by the wedge between those who pay for them and those who derive the benefits, create the observed tensions. Based on this analysis, we propose a framework to analyze the functional elements of a CCP and examine whether an alternative clearing model might be more effective. We conclude that incentives would be better aligned if the functions of CCPs were unbundled and the ownership and funding structures that best suit their individual characteristics were selected. Functions that are critical for the provision of financial stability might suggest some form of public sector involvement, whereas other services might lend themselves to a for-profit or traditional club model.

Latin America in the G20: Continuities and Ruptures of the Regional Agenda (2008–2018)

The Group of 20 (G20) broke onto the global scene shortly after the bankruptcy of the financial giant Lehman Brothers, which until then had been the fourth-largest investment bank in the United States with a 158-year long history. On 15 September 2008, the world witnessed the unthinkable. The international financial system was crumbling from within and traditional policy tools were unable to stop the fall. Since mid-2007, the collapse of housing prices and the implosion of the subprime mortgage market bubble had generated a wave of bankruptcies in the financial sector in the United States and Europe. In October 2008, both the TED spread indicator, which accounts for the level of stress in the U.S. banking sector, and the Emerging Market Bond Index (EMBI) Global spread index, which reflects the combined risk of 61 emerging markets, reached their historic peaks [IMF, 2017]. The message was clear: the financial crisis was not easing and the risks of global contagion were already being felt. It was then that President George W. Bush, in the final months of his second term, decided to convene a summit of the heads of state of the main global economies. Reflecting the emerging multipolar order, in particular the rise of China, Bush issued invitations to his peers among the G20. The exclusive Group of 7 (G7) at the table of global governance - comprised of the main advanced economies - was thus expanded to include the largest emerging economies as well.[1] The G20 is comprised of nineteen national economies, plus the European Union, that are considered “systemically important” and that together account for more than 80% of global product, 75% of international trade and 66% of world population. Since 1999, the group had operated as a technical forum for financial coordination between finance ministers,[2] but in November 2008 the first G20 leaders’ summit took place in Washington DC. The presidents of the three largest Latin American economies - Argentina, Brazil and Mexico - participated in this inaugural summit. In the decade that has passed since that first meeting, the leaders of the G20 have met a total of 12 times, and plan to do so again in November 2018 in Buenos Aires under the annual (rotating) G20 presidency of Argentina. Previously, Mexico had hosted the leaders’ summit in Los Cabos in 2012 and Brazil had served as the G20 coordinator in 2008 during the transition from a ministerial forum to forum for heads of state. This article explores the role and main contributions of the three Latin American economies in the G20 during the last decade, focusing in particular on the continuities and ruptures in the regional agenda towards the forum. With this goal in mind, the analysis begins with an overview of the metamorphosis of the G20 during its first decade. Then, the specific Latin American path is explored. The article closes with a brief presentation of an alternative approach and agenda for the G20.

G20 Governance of Digitalization

This study systematically assesses the G20 summit’s performance on digitalization across the key dimensions and suggests what has caused its particular pattern of performance thus far [Kirton, 2013]. It argues that the G20 summit’s digitalization governance has been increasingly successful. Its digitalization agenda steadily expanded since the beginning, with a major surge in 2016-17. G20 summits first addressed digitalization in response to the American-turned-global financial crisis of 2008. Then, G20 leaders acknowledged e-commerce as an important tool to manage the crisis. They then gradually expanded their agenda to finally focus on inequality, a root cause of antiglobalization. They thus moved from a crisis-response to a crisis-prevention approach. This spread and spike is seen in the G20’s direction-setting, decision-making and institutional development of global governance, but not in its delivery of its decisions. This overall performance was driven partly by the shocking surge in populism bred by inequality in the UK and U.S. in 2015 and 2016, by the failure of the established multilateral organizations in response, by the global predominance and equalizing capabilities of G20 members in specialized digital capabilities and their convergence on the economic growth through openness that digitalization brought. Yet this performance flowed primarily from the hosting of economically reforming China in 2016 and export-oriented Germany in 2017, whose politically secure leaders sought to shape digitalization for the benefit of all in response to the rise of populism and protectionism in the UK and the United States.

New Industrial Revolution: Upgrading Trade and Investment Frameworks for Digitalization

This policy brief was produced by the T20 Task Force on Trade, Investment and Tax Cooperation under the G20 Presidency of Argentina in 2018. The task force was set up to examine how to encourage a rules-based multilateral trade system that broadens the benefits of economic integration while providing the tools to protect those that are hurt by globalisation. The policy brief provides analysis and specific policy recommendations for G20 leaders and other government officials in the G20 process: • Multilateral progress on the governance of the digital economy and trade remains sluggish, with possible serious consequences for the global economy and development. Processes currently in course, such as those at WTO, need strengthening. Such attention also needs to effectively address the risks of a widening digital divide. Plurilateral and regional approaches raise the potential for innovation in this domain, but such approaches must be understood systemically in relation to their sustainable development impacts. • New gaps in trade governance have been exposed as the digital economy continues to grow and new technologies emerge and are rapidly deployed. Policymaking in this area requires more and effective international interagency coordination and greater involvement of country capitals. • Misallocation of taxable profits is exacerbated by lack of adequate frameworks that address the digitalization of economy and trade, and there is lack of consensus about political and technical solutions.

SDGs, health and the G20: a vision for public policy

Abstract Ensuring ‘health for all’ remains a persistent and entrenched global challenge. G20 governments are in a position to elevate the priority accorded to health, and acknowledge the centrality of health to attaining the SDGs. The authors call on G20 leaders to build nations that are more inclusive and less divided, by: adopting a Health- in-All-Policies approach, prioritizing the most vulnerable, engaging citizens in policy processes, and filling health data gaps.

Fossil Fuel Subsidy Reforms, Spatial Market Integration, and Welfare: Evidence from a Natural Experiment in Ethiopia

AbstractIn light of climate change and tight fiscal conditions after the 2008 crises, fuel subsidy reform has become a popular policy. The G20 leaders, in their Pittsburgh, Pennsylvania meeting in 2009, committed to phase out inefficient fuel subsidies. However, little is known about the implications of removing subsidies on food prices and welfare. I study the welfare effects of such reforms through their impacts on the spatial dispersion of food prices using a “natural experiment” from Ethiopia. I employ time‐regression discontinuity design using a highly disaggregated monthly grain price data (1996–2013) from 300 locations. I find the following: (a) the reform substantially increased grain price dispersion; (b) there are notable spatial heterogeneities in the treatment effect; (c) even if the reform has had no impact on overall price levels, it increased cross‐sectional spatial price differences; and (d) net‐sellers of grain in remote districts and some urban households experienced welfare losses.

A Quantum Leap in Energy Efficiency to Put the Sustainable Development Goals in Closer Reach

AbstractTargeted improvements in the way energy is transformed, distributed and used can accelerate progress toward achieving the United Nations’ Sustainable Development Goals (SDGs). Compared to a situation in which no indicators are defined and monitored, tracking progress through indicators would make it easier to reap the full developmental benefits associated with improvements in energy efficiency. We call upon G20 leaders to adopt SDG‐specific energy‐efficiency indicators, with a view to ultimately accelerating progress toward achieving the United Nations’ Sustainable Development Goals.

Limited emission reductions from fuel subsidy removal except in energy-exporting regions.

Hopes are high that removing fossil fuel subsidies could help to mitigate climate change by discouraging inefficient energy consumption and levelling the playing field for renewable energy. In September 2016, the G20 countries re-affirmed their 2009 commitment (at the G20 Leaders' Summit) to phase out fossil fuel subsidies and many national governments are using today's low oil prices as an opportunity to do so. In practical terms, this means abandoning policies that decrease the price of fossil fuels and electricity generated from fossil fuels to below normal market prices. However, whether the removal of subsidies, even if implemented worldwide, would have a large impact on climate change mitigation has not been systematically explored. Here we show that removing fossil fuel subsidies would have an unexpectedly small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030. Subsidy removal would reduce the carbon price necessary to stabilize greenhouse gas concentration at 550 parts per million by only 2-12 per cent under low oil prices. Removing subsidies in most regions would deliver smaller emission reductions than the Paris Agreement (2015) climate pledges and in some regions global subsidy removal may actually lead to an increase in emissions, owing to either coal replacing subsidized oil and natural gas or natural-gas use shifting from subsidizing, energy-exporting regions to non-subsidizing, importing regions. Our results show that subsidy removal would result in the largest CO2 emission reductions in high-income oil- and gas-exporting regions, where the reductions would exceed the climate pledges of these regions and where subsidy removal would affect fewer people living below the poverty line than in lower-income regions.

Do G20 Leaders need to put on their Own Emergency Oxygen Masks First? A Look at Germany’s G20 Presidency and Climate Policy

Do G20 Leaders need to put on their Own Emergency Oxygen Masks First? A Look at Germany’s G20 Presidency and Climate Policy

More financial burden-sharing for developing countries that host refugees

Abstract The authors call on G20 leaders to extend more predictable and substantial support to lowand- middle-income countries that host refugees, in recognition of the global public good that these countries provide. Together with other high-income countries, G20 countries should fully cover the cost of providing for the basic and social needs of refugees. They should also help to expand public services and infrastructure for refugees as well as resident populations. Such international support for the economic integration and social inclusion of refugees will be most effective if host countries grant refugees a firm legal status with access to employment and entrepreneurship.

Revitalizing the Global Trading System: What Could the G20 Do?

Since 2008, G20 leaders have repeatedly committed themselves not to resort to protectionism and to conclude WTO negotiations expeditiously. The jury is out on the extent to which they lived up to the first promise; they failed to deliver the second. Anemic global trade growth rates since 2010 implies that trade has not been a driver of much needed economic dynamism. This paper argues that the G20 should pursue a more ambitious trade agenda and that there is much that greater leadership by the G20 could do to reinvigorate the trading system. A first step would be to commit to concrete actions that can be implemented by individual governments on a concerted basis and that center on reducing trade costs and improving access to services for firms. The Chinese presidency should also seek to have the G20 commit to more effective monitoring and analysis of trade policy broadly defined (including subsidies and investment incentives) and the impact of the many preferential trade agreements involving China, the EU and the US, the world’s largest trading powers.

OECD: Multilateral Instrument To Implement BEPS

The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project deliverables include, among other recommendations, changes to the OECD Model. In order to fulfil the desire of OECD and G20 leaders to dramatically increase the pace in reforming international tax law, the OECD is introducing with the multilateral instrument an innovative tool which should allow rapid implementation of agreed treaty-related measures. The authors address the origin of and work related to this multilateral instrument, its potential contents and the outstanding issues.

Revitalizing the Global Trading System: What Could the G20 Do?

AbstractSince 2008, G20 leaders have repeatedly committed themselves not to resort to protectionism and to conclude WTO negotiations expeditiously. The jury is out on the extent to which they have lived up to the first promise; they have failed to deliver the second. Anemic global trade growth rates since 2010 imply that trade has not been a driver of much‐needed economic dynamism. This paper argues that the G20 should pursue a more ambitious trade agenda and that there is much that greater leadership by the G20 could do to reinvigorate the trading system. A first step would be to commit to concrete actions that can be implemented by individual governments on a concerted basis and that center on reducing trade costs and improving access to services for firms. The Chinese presidency should also seek to have the G20 commit to more effective monitoring and analysis of trade policy broadly defined (including subsidies and investment incentives) and the impact of the many preferential trade agreements involving China, the EU and the USA, the world's largest trading powers.

G20 Hangzhou Summit: A Possible Turning Point for Global Governance

The 2016 G20 Summit in Hangzhou takes place within a tense global political context. The outcome of the UK Brexit referendum in June revealed the deep divide between the politics of competitive nationalism and the commitment to international cooperation. It also reflected the depth of public reaction to global economic integration and the absence of response to public anxieties about social well-being and environmental sustainability from the political middle in many countries. China’s hosting of the G20 Summit presents an opportunity to turn a corner in global summitry by strengthening global leadership at this critical juncture, while China’s ability to do so depends on the willingness of other G20 members to comprehensively address public anxieties. The UN 2030 Agenda and the Paris Climate Agreement, both reached in 2015, do provide political and policy answers to the public anxieties. The question is the effectiveness of the initiatives governments are taking to implement them, which could be framed together to achieve sustainability for all in the face of serious, demonstrable systemic risks. Many governments may resist this level of ambition and prefer to strike a lower profile as the world shifts its focus from goal setting in 2015 to goal implementation in 2016. Yet even with this less ambitious approach, there are ways that G20 countries can initiate processes that engage stakeholders in envisioning the future and developing alternative approaches and pathways to move their nations toward where they need to be by 2030 in terms of social, economic, and environmental sustainability. As people-centered and planet-centered agendas, the sustainable development goals (SDGs) set in the UN 2030 Agenda and the Paris Climate Agreement have the policy content necessary to provide hope and direction for anxious publics. Similarly, it is hopeful that G20 leaders can develop narratives and define commitments to address the economic insecurity of their people and in the meantime strengthen the G20’s role in global governance.

Shedding Light on Dark Markets: First Insights from the New Eu-Wide OTC Derivatives Dataset

Policy is only as good as the information at the disposal of policymakers. Few moments illustrate this better than the uncertainty before and after the default of Lehman Brothers and the subsequent decision to stand behind AIG. Authorities were forced to make critical policy decisions, despite being uncertain about counterparties’ exposures and the protection sold against their default. Opacity has been a defining characteristic of over-the-counter derivatives markets – to the extent that they have been labelled “dark markets” (Duffie, 2012). Motivated by the concern that opacity exercerbates crises, the G20 leaders made a decisive push in 2009 for greater transparency in derivatives markets. In Europe, this initiative was formalised in 2012 in the European Markets Infrastructure Regulation (EMIR), which requires EU entities engaging in derivatives transactions to report them to trade repositories authorised by the European Securities Markets Authority (ESMA). Derivatives markets are thus in the process of becoming one of the most transparent markets for regulators. This paper represents a first analysis of the EU-wide data collected under EMIR. We start by describing the structure of the dataset, drawing comparisons with existing survey-based evidence on derivatives markets. The rest of the paper is divided into three sections, focusing on the three largest derivatives markets (interest rates, foreign exchange and credit).

The G20: Balancing National Interests with the Global Common Good

The Group of Twenty (G20) has been evolving as a widely recognized, yet controversial, power center of the global economy. While this self-selected club has performed important functions for member states and the world at large, criticism persists with regard to its effectiveness and legitimacy. The G20 still struggles with the critical challenge of how to balance the legitimate pursuit of national interests with a genuine commitment to the global common good. At present, the G20 Development Working Group (DWG) is tasked with coordinating and monitoring G20 activities on the UN 2030 Agenda for Sustainable Development. However, real progress will only happen if and when the personal representatives of the G20 members, or the Sherpas, take full responsibility of the process and assert their authority toward the G20 Finance Track on this issue. The current Chinese presidency has strengthened the globalist orientation of the G20 by placing the UN 2030 Agenda on the central stage. The G20 Hangzhou Summit is very likely to adopt a 2030 Action Plan which addresses three transformative dimensions: domestic actions within each G20 country, collective actions toward global public goods, and support for low-income and developing countries. The upcoming German presidency should build on the Chinese agenda by focusing on five priorities: First, to promote the implementation of the Sustainable Development Goals (SDGs); second, to create synergies between South-South and North-South development cooperation; third, to become role models for structural transformation; fourth, to support sustainable urbanization; and finally, to enhance the evolution of global knowledge communities. As demonstrated by Chinese research institutions, knowledge organizations in the Thinktank 20 (T20) can play an important role by providing critical analyses and policy recommendations to G20 leaders.