The Prime Minister's proposal to give the International Monetary Fund (IMF) a primary role as an "early warning system" for the financial markets faces strong opposition from European and US regulators, it emerged at the weekend.
On Friday, Mr Brown spoke at the World Economic Forum and urged the case for the World Bank to become a world environmental bank, adding funding for green projects in emerging markets and the developing world to its aid brief. More controversially, he also called for the IMF to be reconstituted to be "more like an independent central bank".
While rejecting calls for "heavy-handed regulation", Mr Brown said there had been "not enough globalisation" when it came to international financial regulation and that multilateral bodies had lagged behind the pace of integration in capital markets.
But senior figures in the European regulatory community stated that the IMF was "irreplaceable". They conceded the case for reform of the institution with a new business model and a refocusing of its activities – but rejected Mr Brown's call for it to have a role in market regulation.
It was suggested that the financial stability forum, steered by the Basel committee of international central bankers with input from the IMF and other bodies, would be a better vehicle for such an early warning function than even a reformed IMF.
Regulators from the United States were more scathing, suggesting that Mr Brown's proposal had "zero" feasibility and casting doubt on the ability of any organisation to second-guess the markets and warn of insipient asset price bubbles. Better, they said, to help markets absorb "inevitable traumas" when they arose. They suggested that the very effort to construct an early warning system would distract the authorities from more important work. The idea of the IMF becominga global regulator was"implausible", they added.
The IMF has come under increasing scrutiny as its traditional role of providing capital to nations in financial difficulties has grown diminished in a world of floating exchange rates, fast flows of private capital and growing trade surpluses in emerging economies. Founded in 1944, its many critics, including Mr Brown, have suggested that it needs radical change to cope with modern challenges.
The credit crunch has caused much soul-searching among international financial regulators, who were unprepared for the freezing of debt markets in August after a period of excess fuelled by a belief that complex financial instruments had dispersed risk around the world.
The call for early warning systems to spot and prevent financial shocksis not a new one. The IMF pledged in 2001 to put such systems in place to avertthe multi-billion-dollar bail-outs that were needed torebuild economies in theaftermath of the Asian crisis of 1997-1998.