G20 should aim to make AIIB and NDB the new IMF and World Bank

The West has refused to increase the quotas of the IMF and voting rights in the World Bank in proportion with the changed economic weights of countries such as China and India.
The West has refused to increase the quotas of the IMF and voting rights in the World Bank in proportion with the changed economic weights of countries such as China and India.


  • China, particularly its state-led Belt and Road Initiative, has now eclipsed the World Bank and the IMF as a source of development credit for countries.

A distinguished economist has argued in an Economic Times op-ed that India must strive during its year-long G20 presidency, which started from December 1, to get the Bretton Woods institutions, particularly the International Monetary Fund (IMF) and the World Bank to modernise themselves.

It’s true that the old international financial order is broken. The need to reform it was felt after the global financial crisis of 2008, and the urgency has increased after the Covid-19 pandemic and Russia’s war on Ukraine. The developed world, emerging economies and low-income countries — all have reasons to want the global economic order overhauled.

The ideology of trade being the way to ensure global peace and prosperity has few devotees and even fewer practitioners left. The principles of free trade are in various stages of being discarded across countries, and are getting replaced by rising protectionism, inward-looking policies and trade warfare. Global supply chains are being reconstructed for tight alignment with geopolitics rather than business and economic considerations. Policy spillovers from central banks of the developed world to emerging markets have been inducing heightened volatility in the flow of capital resulting in sharp currency movements with no link to countries’ economic fundamentals. Synchronized global food and fuel prices inflation as fallout of the western sanctions on Russia has sent low-income economies scrambling for sovereign solvency. But even rich countries haven’t escaped the pain.

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There’s a constituency, therefore, in the rich world for the Bretton Woods twins to play a significant role in steering the overhaul required. There’s also a realization that if they are to mid-wife a new global order, they must first reinvent themselves. Dr. Ajay Chhibber’s op-ed reflects this awareness of the weaknesses of these institutions, given his rich experience of working in the World Bank, UN, UNDP and the Institute for International Economic Policy (IIEP), George Washington University, Washington D.C.. (His India work experience is no less impressive; he was the first director general of India’s Independent Evaluation Office, with the rank of minister of state.)

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The Bretton Woods system was set up in 1944 as a response to the Great Depression and the beginning of the end of World War II. It was named after the New Hampshire town where a conference drew up the agreements for creating a new international basis for exchanging currencies. Governments around the world had been controlling imports and exports to offset wartime blockades dating back to World War I. The inevitable fallout of which was that countries were actively manipulating currencies to manage foreign trade flows. It was a time of currency wars, devaluation, deflation and depression.

India was one of the 44 countries that were part of the discussions that also led to the founding of the IMF and the International Bank for Reconstruction and Development, or now the World Bank.

The IMF was created for administering this fixed exchange rate system, monitoring exchange rates and lending reserve currencies to nations with trade deficits; the World Bank for assisting undeveloped countries with capital.

How much each of the 44 countries contributed as membership fee – the source of funds for the institutions – determined their voting shares, and abilities to shape outcomes.

The member states agreed to fix their exchange rate by pegging their currencies to the U.S. dollar. This was the basis on which free international trade and postwar reconstruction was built. The US linked the dollar to gold – $1 was as good as 35 oz. of bullion.

In 1971, US President Richard Nixon severed the dollar’s link to gold to prevent a run on Fort Knox; the US gold reserves were sufficient to cover barely a third of the dollars in non-American hands. The Bretton Woods system collapsed as a result. Over the next two years most economies let their currencies float freely against the dollar. The transition saw falling stock prices, skyrocketing oil prices, bank collapses and inflation.

After the collapse of the fixed exchange rate system it was set up to administer, the IMF reinvented itself as a rescue lender to governments with balance of payments and other financial crises. It’s been accused of following different yardsticks when providing bailouts and prescribing structural adjustments for the white-people countries (a case cited is its approach to Greece after the global financial crisis and hiding fiscal vulnerabilities triggered the Greek sovereign debt crisis, which increased risks for the entire euro zone) versus stringent conditionalites elsewhere.

The willingness of the US government to host the Bretton Woods conference of 1944, to commit to becoming the principal creditor, and to accommodate the needs of other countries, gives the IMF and the World Bank a certain history.

China, particularly its state-led Belt and Road Initiative, has now eclipsed the World Bank and the IMF as a source of development credit for countries. (Although loans for more than $59 billion have had to be renegotiated since the Covid breakout with countries struggling against mounting debt distress.)

This isn’t surprising, given the nucleus of global growth is shifting away from the west to Asia, specifically China and India, and geopolitics is changing too.

The West has refused to increase the quotas of the IMF and voting rights in the World Bank in proportion with the changed economic weights of countries such as China and India. It’s only natural then that multilateralism is given a new anchor reflecting the new emerging global economy. The world needs new champions of multilateralism. Instead of Washington, the new symbol of multilateralism ought to be in India or China.

The Shanghai headquartered Brics-led New Development Bank, is the crisis lender led by emerging markets aspires to rival the IMF. India’s K. V. Kamath was its first President from 2015-2020.

The Beijing-based Asian Infrastructure Investment Bank (AIIB) was conceived as a China-led alternative to the World Bank and other western-led multilateral institutions that have long dominated development lending.

It represents the rise of Asia, where all the global economic dynamism now is, but accepts membership from any country. It has 105 members. Of which India is the second largest shareholder and Russia the third. Yet, the AIIB has not toed the China or India line on Russia’s war in Ukraine. The US and Japan are not AIIB’s members. But the UK, France, Australia and South Korea are.

Head of AIIB Jin Liqun was in Delhi recently where he met finance minister Nirmala Sitharaman, who called for an expansion of operations in India. Liqun told the FT in an interview that AIIB is working to increase financing to more than $10bn in each of the three years to the end of 2025 from a total of $36bn, and plans to redouble efforts to support infrastructure projects aimed at mitigating climate change and also to align itself more clearly with the private sector. By 2030, some 50 per cent of the loan book would be to the private sector, up from around 25 per cent now.

Instead of focusing on the old global economic order’s institutions, the agenda for the G20 should be to get the new institutions such as AIIB and NDB to have offices in India and become the new IMF and the World Bank in the new global economy.

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