Prime Minister Gordon Brown has been trying to drum up support for some form of Bretton Woods Two, i.e., a big rethink regarding how the global economy is governed.  So far, little support has materialized for any kind of sweeping approach to these issues.

Still, the chairmanship of the G20 affords him a great opportunity to make progress in other ways.  (The G20 website still needs updating, as does the group’s Wikipedia entry; the key point is that this is now a forum for heads of government, rather than for ministers of finance/central bank governors.  The chair was due to rotate to the UK in any case; the fact that it falls to Mr Brown in person is an amazing stroke of luck for him.)

The G20 focus in November, as you may recall, was largely on re-regulation and it remains to be seen how much of that agenda will be implemented by the next meeting on April 2nd.  But that meeting was substantially under French auspices, despite taking place in Washington.  Mr Sarkozy’s staff were jubiliant by the meeting’s end: “we have put the bell on the American cat” was the most memorable quote.  The next meeting will take place in Britain, with a new US President at the table, and looks likely to be a much more serious affair.

In particular, protectionism is without a doubt on the rise.  The G20 communique had some boilerplate language against trade restrictions, but these are now sneaking to the forefront, currently disguised as various forms of urgent bailout support (and with strong hints of capital controls in the air for emerging markets).  So the G20 should really come to grips with this, for example with a much clearer statement of what is and is not allowed in the current context.  You might hope also for a “name and shame” approach, but I think you would be disappointed.

While grappling with protectionism, Mr Brown can also engage with the thorny issue of China’s exchange rate.  The continuing Chinese current account surplus and creeping depreciation of the renminbi will be the focal point of protectionist resentment on Capitol Hill and elsewhere in 2009.  Dealing with this issue was delegated to the IMF, but the latest indications are that the Fund would prefer to move on.  This creates a gap into which Mr Brown could sensibly step, with some well-timed bilateral and multilateral diplomacy.

In fact, I would not be surprised if Mr Brown moves towards tying anti-protectionism with measures that limit exchange rate misalignment (i.e., if you don’t let your currency become massively undervalued, we’ll keep protectionist pressures at bay).  For a real coup, he could also propose more teeth for actions against exchange rate undervaluation, perhaps along the lines suggested by Arvind Subramanian and Aaditya Mattoo. 

Any progress in this direction would be a major achievement, and it could lay a genuinely cooperative foundation for a serious – and long overdue – discussion of what a Bretton Woods Two system could look like.

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