The new G20 – how will it work?

The G20 has now eclipsed the G8 in economic decision-making power, explains Patrick Wintour

The G20 meeting in London, chaired by Gordon Brown, is seen as the moment in which leaders recognised the need for it to become a permanent forum after it had previously met sporadically at finance minister level.

In practice, the leading emerging economies – Brazil, South Africa, India, China and Mexico – have been attending the G8 for the past four years, but only as guests and sometimes for very brief sessions, leading to a deep sense of resentment.

Both Brown and Tony Blair had been strong advocates of a larger economic forum, reflecting the weight of the giant new economies emerging in Asia, Latin America and, to a lesser extent, Africa.

The new G20 will not have a permanent secretariat, and its chairmanship will be rotated annually, with South Korea running the body next year and France in 2011.

Lady Vadera, Brown's closest Economy advisor, is to act as the point woman for the South Koreans, ensuring there is continuity in policymaking.

The G8 is expected to continue to meet, but its focus is likely to switch away from economic issues – although no firm decision has yet been taken on this.

The G20 has rapidly evolved into a more powerful body through the world economic crisis, and has now met three times in less than a year.

A US official said the change was a reflection of the world today, adding: "It's basically pulling international cooperation into the 21st century."

It has also been agreed to give countries such as China more votes on the board of the International Monetary Fund.

A final agreement on a revamped representation structure is not going to be reached in Pittsburgh, the US treasury secretary, Tim Geithner, said. This will be completed in negotiations at the IMF, set to conclude by January 2011.

The G20 is also likely today to agree a new system of economic cooperation designed to minimise unbalanced growth in the economy.

The proposal has been pushed for many years by Brown, and the prime minister argues that he first set out the basis of what is emerging in a speech at Harvard in 1998.

Under the proposal, the G20 leaders will annually agree outline objectives for growth and then ask the IMF to carry out a form of assessment or peer review to ensure member states are following the plan's objectives.

Critics claim such a surveillance role for the IMF has been proposed before, notably at the G7 meeting held in October 1998, but little of practical value emerged.

They also claim the IMF will have no sanction to order national governments to adjust their economies, such as exchange rates interest or fiscal policy.

Brown, however, believes there is a new political momentum behind the move as world leaders digest the lessons of last year's near-crash.

Analysts have argued that more needs to be done to reduce the US's ballooning deficit, and to encourage the countries holding large surpluses, such as Germany and China to consume more.

Brown has acknowledged that China has done much to expand growth, but believes the world economy will need to adjust as the American consumer reduces its spending for the foreseeable future.

The fear among world leaders is that although growth is returning faster than forecast it will be weak and will produce few jobs.

The G20 will also study a report from the Financial Stability Board on the difficult issue of bankers' bonuses.

It is likely to call for banks to retain more capital and for some form of clawback if firms perform less well than expected.