Now that it’s behind us, we can unreservedly say that August is a strange month, which may have even prompted author Sylvia Plath to call it “the odd uneven time". The Hiroshima and Nagasaki bombs were dropped in August; Saddam Hussain invaded Kuwait in August 1990. On a slightly more cheerful note, August 1969 witnessed the staging of the landmark Woodstock Rock Festival. August 2021 has also not disappointed; it has forced into the open contentious multilateral fault-lines.
The need for extensive reforms in the United Nations (UN) re-emerged this August when the Taliban over-ran Kabul, after striking a mysterious deal with the US, parts of which remain under wraps. Ideally, the UN should have been there during this bizarre regime change but was conspicuously missing. This is odd, given the conditions surrounding the UN’s founding in 1945 after World War II, when delegates from 50 nations met in San Francisco and finalized a charter. The first para of the first chapter reads: “To maintain international peace and security, and to that end: to take effective collective measures for the prevention and removal of threats to the peace, and for the suppression of acts of aggression or other breaches of the peace…"
It has been evident for a while now that something is amiss in the state of the UN, given how it has repeatedly failed to meet its charter promises. To be fair, the UN does have some good work to its credit and the 12 Nobel awards won by its agencies and personnel are a testament to that. Yet, its anachronistic structure—such as a rigid security council frozen in time, oblivious to a changed world—and its inability to act against rogue regimes raises questions about its relevance. The UN’s failure to enforce vaccine equity during the past 18 months has only served to sharpen that debate. But hope springs afresh: UN Secretary-General António Guterres is seeking a reset of the agency and has released a document, ‘A Common Agenda’, to meet future challenges.
August also had a special relationship with former US president Richard Nixon: the Watergate scandal forced him to resign on 9 August 1974. Three years before that, on 15 August 1971, Nixon had made another historic announcement: he cut the dollar’s umbilical cord with gold, ending what was known as the Bretton Woods exchange system. This single act is believed to have set off stagflationary hiccups in the US during the 1970s, but once these were quelled, the dollar reinforced its position as the globe’s reserve currency, as had been decided at Bretton Woods. That was a pivotal occasion for the international financial system.
Another vital moment might now be upon us. The dollar’s dominant position as the world’s reserve currency has been under threat and the pandemic has enhanced that risk perception. A study from the International Monetary Fund (IMF) shows that the dollar’s share in foreign currency reserves of all central banks has dropped from around 71% in 1999, when the euro was launched, to 59% in September 2021. While the world has gradually moved to a multiple reserve currency system, there is no certainty if a single currency—be it Bitcoin or the yuan—will ever replace the dollar.
The Bretton Woods talks were held post- World War II to discuss global economic coordination and reconstruction. Although the meeting was attended by over 700 delegates, the US’s Harry Dexter White and UK’s John Maynard Keynes monopolized the proceedings. All currencies were made convertible into the dollar, which had a fixed rate of $35 per ounce of gold. But the US economy soon ran into problems. Growing public debt to finance the Vietnam war, a shrinking share of global output due to post-war reconstruction in Germany and Japan, a rising balance of payments deficit and the Federal Reserve’s monetary policy combined to leave the dollar over-valued. Nixon had no choice but wield the axe.
The Bretton Woods meetings also set up two multilateral institutions: the World Bank and IMF. The Bank recently announced the scrapping of its Doing Business rankings after an external audit alleged manipulation of the process. In the cross-hairs is IMF’s managing director Kristalina Georgieva, who, in her earlier role at the World Bank, has been accused of putting pressure on colleagues to boost the rankings of China and Saudi Arabia. Nobel Laureate Joseph Stiglitz has rushed to her support: he sees a hatchet job by conservatives who resent Georgieva’s support for poor countries during the pandemic and her attempts to reposition IMF on climate change, a bugbear for conservatives (bit.ly/3AixaAe). The truth will out some day, but it refocuses attention on how these institutions need deep reforms, whether it is in their internal practices, their unequal shareholding structures, or how their operational philosophy is determined by politicians on Washington’s Capitol Hill.
A signed op-ed by six world leaders (bit.ly/3AlDqH7) recently pitched for multilateralism 2.0: “We therefore must modernize our multilateral institutions, making them fit for purpose and better equipped to deal with the global and cross-generational challenges we face." The first step towards reviving multilateralism would be to erase traces of benign unilateralism that got hardwired in the triumphant aftermath of World War II. The upcoming CoP-26 will be the first test.
Rajrishi Singhal is a policy consultant, journalist and author. His Twitter handle is @rajrishisinghal.
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