Since the collapse of the Mexican peso and the Southeast Asian crisis, the people in charge of the financial system have been trying to find ways to maintain international financial stability. One of these ways was to create the G20. The G20, although an improvement because it represents a larger number of countries, is ineffective because of the lack of concrete proof that there is a democratic system within the group.

The G20 is a group of 20 countries. It includes the seven countries of the G7 : Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; and 13 other countries that include emerging markets : Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the European Union. In each of the G20 meetings, the finance minister of each of these countries, the managing director of the IMF and the president of the World Bank get together for a forum of discussion. Their mandate is to promote discussions, studies and reviews of policy issues among industrialized countries and emerging markets with a view to promote international financial stability. However, they are not instituting on their own; their policy must be adopted by the IMF, the International Monetary Fund, and their financial committees. The G7 created the G20 to have a broader participation. Unlike the G7, not only the industrialized countries participate, but also the emerging markets that are more susceptible to instability. The first Chairman chosen is the finance Minister of Canada, Paul Martin.

So, why is the G20 ineffective? First of all, the G20 was created only a year ago, so there aren't a lot of concrete results to evaluate. But there are a few indicators. The first criticism of the G20 is that it's a non-democratic and non-transparent group, so how can we really know what is being decided and by whom? This brings us to the next point, who is in charge? Is the G7 over-dominant within the G20? In the eyes of most analysts, the real purpose was quite clear : to legitimize the policy decisions of the G7 by presenting them via a larger group. Paul Martin said : "this new group brings together finance ministers and central bank governors from a diverse group of countries representing 87 % of world gross domestic product and 65 % of world population". But without transparency, who knows who makes the decisions. The industrialized countries (G7) are probably pulling most of the strings.

Within their mandate to achieve global stability, the G20 must find answers to problems such as the devastating effect of financial crises and the growing gap between the rich and poor. The group has recommended a number of measures, which promote honest banking practices such as consistent accounting standards and transparent standards for economic data. These are very good measures, because they reduce the chances of unexpected surprises that can trigger mass exodus of investors. But it does not resolve the growing problem of currency speculation that makes a bad situation even worse. Currency flow controls would be the answer to this problem. China, which has currency flow controls, weathered the Asian financial crisis quite well. The G20 agreed currency flow controls could be useful, but did nothing. The Tobin Tax, brought up by Paul Martin five years ago, would be a good choice for currency glow control, but more recently, he acts like he has never heard of it. The G7 don't like currency flow controls because speculation favors mainly the industrialized countries. The Tobin Tax is designed to control currency speculation by charging a minimal tax (0.1 %) on all international currency speculation. There is currently about 1 trillion dollars traded every day, and 95 % is speculation. This tax would reduce speculation and would generate considerable revenue (perhaps around 10 billion dollars a year). This revenue could be used to equalize the wealth distribution (another part of the G20 mandate).

Another criticism of the G20 is the absence of any mention of third world debt cancellation. With a mandate to alleviate poverty and reduce the gap between the rich and the poor, this is an inexcusable omission.

The G20 is difficult to evaluate, but it is probably just a platform for the G7 (as was written earlier, the group is non-transparent so this is just a supposition). When it is shown that the 20 participants have an equitable vote in a democratic system, then the G20 will be legitimate. Allowing emerging markets to participate is very important because everyone must build the global financial system so it is fair to all.

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