In fixing the next financial crisis, the U.S. may be missing in action

Detailed summary

When the time comes, it’s unlikely the U.S. will play the galvanizing role to restore international financial order

Barry Campbell is principal adviser to StrategyCorp, a former legal counsellor at the International Monetary Fund and a former Member of Parliament.

Washington’s unreliability is not just a problem for trade relations – global financial stability could be its next victim.

The prospect of another sovereign-debt crisis or financial-sector meltdown is on the minds of financial regulators. There are flashing lights everywhere. We need to consider how the next crisis would be contained, given the world’s unruly geopolitical context.

The U.S. Federal Reserve and the Treasury have always played the galvanizing role in global financial crisis resolution. The trade interdependence that the U.S. fostered for decades was a guarantee of postwar peace, and underpinned American economic growth and political dominance in those years. The economic and monetary superstructure that the U.S. sponsored and financed with the U.S. dollar was an additional guarantee. Keeping these systems functioning smoothly was understood in Washington to be very much in the country’s interest.

The current administration, however, may see all this as just another way that the United States has been “ripped off,” as U.S. President Donald Trump often puts it. The U.S. now demonstrates little interest in formal arrangements and practised norms in the trade sphere.

Opinion: Carney’s call for alternatives to the U.S. dollar will get backs up in Washington

In this zero-sum world, the underpinnings of global financial architecture are at risk, too. The financial superstructure is supported by certain financial stabilizers, such as currency swap lines, which are triggered in an emergency. Will the U.S. honour these commitments? Will it be able to? Just like trade interdependence, financial interdependence may provide another opportunity for leverage by an aggressive United States.

Orderly resolution of a financial disaster has always required co-ordinated and sometimes selfless actions by a number of national players.

Opening of the article, excerpted from The Globe and Mail (Report on Business). To read the rest, open the article on the publisher's site.