Consequences of the US & China Struggles at the IMF

2021/10/06 | Economy, Note, top news

Strategic Council Online- Opinion: International Monetary Fund (IMF) has become the latest struggle between the U.S. and China, this can be considered in line with the competitions of the two countries at global level; the struggle that shows global competition between the U.S. and China has extended to international organizations too. The attitude of the World Health Organization on Corona pandemic and its positions towards China’s responsibility are also indications that support the competition. Now, the more important question is; what will be the future of the IMF and which direction will it go along with other international bodies? How the financial and monetary markets will be affected? Reza Majid-Zadeh, Director, Simorgh Development Group, Millennium Plan Think-tank

After the financial crisis of 2008, the U.S. hegemony on financial international system was severely damaged and it never returned to pre-crisis status. Thus, the ground was paved for the new global financial governance which has new components. While China was not present in international financial system before 1980s, but she gradually became an active member in global governance of monetary policies. It was after 2008 financial crisis that China called the IMF to take a new task in international financial system, the proposal that showed China’s intention to lead the new system. China advocated the Special Drawing Rights (SDR) of the IMF and asked it to add Renminbi (popular currency) of the country into the basket. At the same time, Brazil, Russia, India and China had demanded to change their votes as much as 7% in order to make a 50-50 balance between the developed and the developing countries. G-20 meeting agreed with 5% transfer of the votes to these countries. Now, China’s share of vote in the IMF is 6.08% which reflects her increasing strong influence on the Organization. Therefore, the U.S. concern is understandable; because any increase in China’s influence will mean her further success in leading international monetary and financial governance to the direction opposite to the U.S. preferences, as the former exclusive power of the Organization. China pledged to purchase billions of dollars of the IMF bonds against these concessions. While the U.S. and Europe were engaged with the consequences of global financial crisis, the situation enabled China to strengthen her bargain power in the IMF. This is shown in unofficial decision-making power of a country which reflects its capacity on influencing policy decisions of the Fund through its employees or its official forums. Groups like G-7, European Union Representatives and Asia-Pacific are only examples that are seeking for more influence both from effecting quality control of policies and satisfying senior executives in connection with programs of the Fund. That’s why the U.S. concern about more influence of China on the IMF means because the Director of the Fund may transfer the influence of any of these international powers directly or indirectly through arrangement of staff and senior executives of the Fund.

Within the framework of such developments, cooperation between China and the U.S. has led to different results, which have brought useful benefits for both sides. However, China’s interest for economic development and her objective to have more influence in global financial governance are not the only outstanding factors of China’s relations with the IMF. Although the prevailing organizational culture of the IMF is to seek confirmation from Washington, but it doesn’t make this pivotal approach in all its policies, and this very same issue, creates an ample ground for furthering China’s influence.

Even some experts believe it isn’t inconceivable that there comes a day when the headquarters of the IMF will be shifted to Beijing. Although this is unlikely to happen but in the meantime it reflects the belief of international financial experts that China will overtake the U.S. in international organizations.

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