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3 Nov, 2008 12:52

Medvedev calls for reform of world financial system

Until a couple of months ago, some economists argued Russia’s robust growth of recent years had effectively “decoupled” it from a direct correlation with the US economy. While the financial crisis proves the theory wrong, the Russian governmen

As world leaders try to deal with the biggest financial crisis since the Great Depression, President Dmitry Medvedev is echoing his French and British counterparts in calling for far reaching changes to the world financial system.

“We will need a new international agreement. The financial system must have common sources, which implies a multiplicity of world financial centres and reserve currencies. We need to form a new risk-management system,which would be based on new techniques, not the principles that the Bretton Woods agreement was based on,” Medvedev said.

Named after the 1944 meeting in the New Hampshire town of the same name, the Bretton Woods agreement led to the creation of the International Monetary Fund and the World Bank.

Developed countries agreed to stick to a fixed exchange rate for their currencies, pegged to gold.

In the 70s, the Nixon administration unilaterally untied the dollar from gold, making the dollar itself a reserve currency.

Now Medvedev is essentially calling for a lowered dependence on the dollar, according to experts. They say it would reduce U.S. influence on the world economy.

Yaroslav Lissovolik, Chief Economist from Deutsche Bank, says:

“Clearly, there is a lack of capital in the West and excess capital and a lot of savings in the East. And one of the ways in which the world economy could adapt quickly to the current conditions would be to allow for a free flow of resources from the East  to the West.”

While the need to overhaul the global financial system seems obvious, what order might replace it remains unclear.

The world will be watching the G-20 meeting in Washington in mid-November, which will be the first to bring together the developed and the developing nations, for the answers.