New credit rating system important
Updated: 2012-09-10 08:15
By Guan Jianzhong (China Daily)
Although the international community has taken a series of steps since 2008 to bail out the global economy, it is still uncertain about whether the credit troubles are deepening and spreading, making it difficult to predict the prospects for improvement. Human society's most pressing task now is to explore the complicated origins of the current situation and choose the best way to bring about a recovery.
The global credit system is the sum total of credit relationships among creditors and debtors and the foundation of the world economy; it is founded on the socialization of credit relationships made possible by having credit-rating information available. The establishment and maintenance of every relationship between a creditor and debtor is directly or indirectly dependent on there being credit-rating information. When such data became an integral part of society, credit ratings seemingly came to dominate the modern credit economy.
The current international credit-rating system has degenerated into a tool of the world's biggest debtor interest bloc; those who compose that bloc have taken advantage of the great extent to which credit-rating information is relied upon in the process of credit globalization. They have also taken advantage of the privileges that give them a say in the rating sector, and transferred the interests of the creditor system to the debtor system, thus making them the source of damage to international credit relationships and giving rise to economic imbalances.
Studies suggest that mankind cannot rely on simple rehabilitation to make the current international credit-rating system assume the responsibility for the world. It is simply impractical to think that amending the current international credit-rating system will be enough to transform it into a force strong enough to meet international public responsibilities.
Reconstructing the double systems is the only way to ensure the world economy recovers.
First, a world economic recovery is not likely to occur unless a new international credit system is established.
Practice tells us that what is being presented by the global credit crisis is a world economic crisis that has been triggered by the severely imbalanced international credit system. The guiding principle in constructing a new international credit system is to comply with the decisive role of wealth creation capability in credit relationships and to develop credit relationships that are based on real solvency
Second, building a new international credit-rating system is the premise for the world economic recovery.
Whether the international credit-rating system can represent the essential requirements of the international credit system is becoming the premise of the world economic recovery.
As the international credit system concerns the sound development of human economic society, the public responsibility of the rating system is thus decided. Objectively, it requires that the benefits of credit-rating agencies should be subject to public interests. Introducing general market principles into the credit-rating industry would make credit-rating agencies forsake the public interest in pursuit of their own benefit.
The new international credit-rating system should be made up of three chief parts - an international credit-rating regulatory organization, international credit-rating agency and international credit-rating criteria.
The four cardinal principles in constructing the international credit rating system should be the global principle, independent principle, consistent principle and international regulatory principle.
The general objective of reforming the international rating system is to build a rating system and mechanism that can impartially reveal what credit risks are found in every credit-debt relationship throughout the world. Doing so will lay a solid foundation for reconstructing the international credit system and promote a world economic recovery, as well as use the rating system's powerful ability to issue warnings to prevent a reoccurrence of global credit troubles.
Proposals to reform the international-rating system to promote world economic recovery bring up many practical questions and even more theoretical questions. The realistic significance of exploring the law is to induce people to think about the goals and methods needed to bring about a world economic recovery. Its historic significance, meanwhile, is to renew the theory of credit economics and light the way forward for the world economy. Fulfilling this great mission, which accords with historic needs, will call for a reliance on human wisdom, consensus and action.
The author is the chairman of Dagong Global Credit Rating.
(China Daily 09/10/2012 page10)