When President Obama sits down next week with Chinese leader Hu Jintao in the Great Hall of the People in Beijing, the two are likely to cover the familiar terrain that has marked relations between their nations: the global economy, currency and trade disputes, carbon emissions and the upcoming Copenhagen summit, and, of course, Taiwan.
All important stuff, no doubt, but also a bit predictable, isn't it? Frankly, the fusion of these two massive economies demands a more daring approach. Hundreds of billions of dollars in annual trade, trillions in loans and investments, and two decades of ever-closer integration have transformed both countries, and the mutual dependence has only deepened during the financial crisis of the past year. Another summit-as-usual won't do. So here are a few suggestions for what Obama and Hu should really be talking about:
First, it's time to form a joint central bank. This won't happen overnight, but in some ways, the process has already begun. Loans and capital flows have undermined the ability of the Federal Reserve to determine interest rates and monetary policy unilaterally. Since 2001, the Fed has moved short-term rates from 1 percent to more than 5 percent and then down to zero, yet the rate on the 10-year Treasury note -- set by market forces and increasingly by Chinese purchases -- has stayed mostly within a relatively narrow band, between 3.5 percent and 4.5 percent. Central banks still matter, but they are severely constrained by global capital flows and mutual dependency.
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