The reform of the Bretton Woods institutions should be consistent with each country’s current and prospective contribution to global growth, seen as the most important global public good.
The 2007-2008 global financial crisis marked a milestone in redefining the international balance of power. The black-and-white picture of the world taken at Bretton Woods in 1944, which had only been marginally retouched in the following decades, started to rapidly fade as the world slipped into the “Great Recession”. The Bretton Woods system, which appeared to have emerged victorious from the momentous changes of the Nineties, suddenly came to be perceived as both economically unsustainable and politically unacceptable.
Emboldened by extraordinary economic growth rates, some emerging economies have become increasingly vocal in their request for an overhaul of the Bretton Woods institutions, in the direction of a reform of their governance system that would mirror the new balance of power at the global level and account for their new policy preferences. After the crisis, some of their political requests were met swiftly: by late 2008, the main forum to discuss global economic matters switched from the G7 to the G20. Following G20 inputs in 2008, the spotlight was put on the reform of countries’ voting power in the IMF. However, impetus towards reforms was to prove short-lived, and today institutional reforms seem to have come to a halt.
In the decades before the crisis, global economic governance had become ever less representative of the international balance of economic power, in terms both of policy coordination and international regulation, as most decisions were increasingly taken by small networks outside formal global governance institutions.
In recent years, the balance of global economic power, both in terms of GDP and international trade, has become ever more dispersed, and multilateral institutions that had been created in a different era – and, to some extent, for different purposes – have been increasingly requested to acknowledge these changes in order to function effectively. This rebalancing in economic and political power originates an urgent need to identify the nature of “global public goods” that countries expect the global financial and monetary system to pursue, uphold and defend.
From G20 declarations, it is clear that the main objective recognized by all participants is the protection of a strong, stable and balanced economic growth, from which every country can benefit. However, in order to achieve the “growth goal” a number of ancillary tasks has consistently appeared in in G20 declarations between 2008 and 2014. G20 leaders should reach an agreement about the priority to give to each of the important objectives and interpret them, at least to some extent, as “global public goods”.
If all the objectives are conceived as subservient to the overarching goal of ensuring that the global economy grows, and does so, as much as possible, in an equitable manner and keeping risks to a minimum, it is urgent that they are pursued with a coherent strategy, a clear timetable, and an effective monitoring mechanism. Ultimately, the reform of the Bretton Woods institutions should be consistent with each country’s current and prospective contribution to global growth, seen as the most important global public good.
This article is based on Valdai Paper #7 , prepared within the framework of the Foundation for Development and Support of the Valdai Discussion Club research program.