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2009-09-27

G grouping of world economic affairs

Comment on Nina Hachigian “Deciding who decides at the G20 summit”, 26/09/2009, http://www.eastasiaforum.org/2009/09/26/deciding-who-decides-at-the-g-20-summit/

This is an important issue that is evolving and should be decided by a core of the current G20 members, the sooner the better.

While there are merits in each of the proposals mentioned in the article, it seems that economic weight should be the key criterion.

Even using the size of the economy as the key criterion, then there is still a tough question: how to determine or calculate the size of a economy?

There is obvious a calculation based on market exchange rate. But it is well understood that the market exchange rate has some significant shortcomings. For example, it may vary substantially within a short period. Also it generally underestimates the real size of most developing economies due to their lack of international trade and especially export power.

So whether you use a market based or a purchasing-power-parity (PPP) based exchange rate to calculate a country’s economic size? Alternatively is it better to use a combination of the two with an equal weight to reflect both the real economy and its trade impact?

In order to enhance its regional representation, then the top economy in a continent could be included.

So I would propose that the group should comprise the top one economy in each continent, and then the next 15 world largest economy, with the size of the economy based on a combination of both PPP and current exchange rate to be calculated by the United Nations. This group should be updated every 5 years to reflect the new world economic reality to be representative.

There should also be a governing structure of the G grouping. The top 5 of the G group should be the standing members during the off meeting period. Again, they should be decided using the same criteria.

This G economic group should be a new branch of the United Nations, to enhance the multilateral nature of the group and the legitimacy of the United Nations.

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