Is the dominance of the dollar in world reserves a reflection of historical factors that are less and less relevant today? Or are there fundamental reasons for the world's central banks to continue using one main currency as a source of liquidity? Second, given that each bloc’s policy choices reflect domestic objectives, what could be achieved through international meetings? The starting point is the need to find a common analysis. Domestic policies should at least be based on mutually consistent assumptions. Only when there is agreement on the nature of the risks inherent in current international monetary arrangements will there be the possibility of a cooperative outcome that is an improvement for all, not just for some. Third, how might we arrive at such a common analysis? The G-7 arose out of an earlier episode of concern about exchange rate movements in the 1980s. Most smaller countries can choose their exchange rate regime without worrying about its impact on the rest of the world. But the large countries – especially the three blocs I identified at the outset – cannot ignore their interdependency. That is why it is important to expand the group of countries that discuss these issues beyond the G-7 to include those, such as China and India, whose actions increasingly have global economic consequences.
It is clear that the aim of central banks to make monetary policy less exciting and more boring needs to be complemented by a collective effort to bring boredom to the international monetary stage. 1  Over the past year, senior policymakers from within the G-7 are reported to have claimed that “It’s awfully important that the euro zone adopt policies that will allow them to grow faster. Their slow growth is hurting our growth” (John Snow, AFX news 24/03/04), and that “Our American friends need to put in place a determined policy to control their deficits and so that their currency does not distort commercial trade” (Nicolas Sarkozy, AFX news 25/11/04), or indeed that China’s exchange rate policy “has become a destabilizing force in the world economy, has led to major international exchange rate and trade imbalances throughout the world” (Open letter from US senators Schumer, Bunning, Durbin, Graham, Dodd and Bayh to Vice President Richard Cheney, 22/01/04). 2  BIS Review 9/2005