G-8 to Ponder Future of U.S. Dollar

Meeting in Italy this week, world leaders will seek accord on an agenda including trade, global warming, and steps to loosen the grip of the recession.

Less formally, but almost unavoidably, the meeting of the Group of Eight -- G-8 -- in the Italian mountain town of L'Aquila is likely to fuel ongoing debates over the continuing usefulness of two traditional economic institutions -- the pre-eminence of the U.S. dollar in world trade and the G-8 itself.

The G-8 dates to the 1970s. It started as a meeting of six leading industrialized democracies and member countries now are Canada, Russia, France, Germany, Japan, the United Kingdom and the United States. In recognition of the emergence of new economic realities, deliberations now include the Outreach 5, including China, India and Brazil, who consult with the older members of the group, but do not host its annual summits or share in its rotating presidency.

"On the economic side, I think they ought to get rid of it," said Barry Bosworth, an economist and senior fellow at Washington's Brookings Institution. "It has been supplanted by the G-20, [which is] not perfect, but a much more open Democratic forum for discussing these issues."

The G-20, organized during the Clinton administration, is the overlapping but broader group of economies that last met in London in April, and will reconvene in Pittsburgh in September.

"If you stick with the G-8 and its original members, it's too small to do much," said Marvin Goodfriend, a professor of economics at Carnegie Mellon University's Tepper School of Business. "That's because the center of gravity of the world economy has shifted to the east with China and India."

The consultations that begin this morning follow months of calls by officials from countries including China, Russia and Brazil for a reassessment of the dollar's role as the world's de facto reserve currency. The international recession combined with the continuing prospect of U.S. deficits have spurred concerns over how well the currency can be expected to hold its value in years to come. Those fears are most acute in China, the biggest U.S. creditor, whose massive store of dollar-denominated assets would be battered if inflation proved to be a sequel to the current downturn.

"The Chinese seem to be pressing on the currency issue," said Desmond Lachman, a fellow of the American Enterprise Institute and a former executive of the International Monetary Fund. "They've expressed some concern that the U.S. budget is out of control."

By James O'Toole, Pittsburgh Post-Gazette

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