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  • Writer's pictureStephen H Akin

The Future of the Bretton Woods Agreement ?

Updated: May 1, 2023

Temperatures have risen over the past week, both in the sunny streets of Washington DC and

at IMF and World Bank headquarters.

David Malpass hosts his last opening press conference as World Bank's president before the only candidate, former Mastercard CEO Ajay Banga, takes office by the end of the fiscal year.


  • Geopolitical tensions and lack of leadership continue to paralyse the BWIs, further widening the multilateral fragmentation

  • The World Bank and IMF continue to fall short of providing the annual $1 trillion financing needed to address climate needs and reach sustainable development goals

  • Newest iteration of the World Bank Evolution Roadmap remains focused on financialization and private sector de-risking while ignoring governance reforms and protection of human rights

The World Bank and IMF Spring Meetings took place from 10-16 April with a calendar full of high-level and bilateral meetings, Civil Society Policy Forum events and protests. The credibility gap of the Bretton Woods Institutions (BWIs) and their powerful country shareholders’ role in solving global problems was ever more palpable, despite lofty rhetoric. As advanced economies are slowly emerging from the inflationary dynamics that hampered their economies in 2022, the interest rate increases implemented by their central banks in response are wreaking havoc in low- and middle-income countries (LMICs) – a growing problem not receiving enough attention due to growing geopolitical tensions.

Hopes for genuine reform were tied to one of Spring Meetings’ main characters, the World Bank’s Evolution Roadmap, driven by G7 calls for the Bank to scale up finance to expand its ability to respond to climate change and other crises reversing development gains. However, the second iteration of the roadmap focused heavily on financialisation and de-risking to crowd in private capital, while failing to acknowledge the importance of governance reforms and protection of human rights. At the Spring Meetings there were few signs of shareholders moving towards a more adequately financed World Bank, with developed countries either failing to mention a capital increase or outright rejecting it, to avoid the possibility of their shares at the Bank being reduced in China’s favour. Instead, Western nations sought to squeeze more capacity out of existing resources by lowering the Bank’s equity-to-loan ratio. Despite annual external financing needs of $1 trillion by 2030 to address climate needs and reach sustainable development goals (SDGs) for LMICs other than China, the World Bank would be stretching its balance sheet to deliver a projected additional lending of $50 billion over the next decade under reforms discussed in the first phase of the roadmap, with none of these reforms resulting in a larger pool of concessional and grant financing. Despite growing acknowledgement amongst staff and high-level officials during the meetings that the ‘Billions to Trillions’ approach has thus far failed to mobilize private finance for development at scale, the Bank remains committed to catalysing the private sector, promoting the same trickle-down economics that so far hasn’t delivered economic transformation.

The Future of The Bretton Woods Agreement.

Calls for stepping up financing have also been growing at the IMF as demand for financing reaches acute levels. Almost 40 countries have expressed interest in the IMF’s Resilience and Sustainability Trust – a reflection in part of the large number of countries likely to require new loan programmes from the Fund in the face of continued spill-over effects from 2022’s inflationary dynamics in the Global South. The demand for the Fund’s Poverty Reduction and Growth Trust (PGRT) is also anticipated to remain high post pandemic, amounting to a need of about 12.5 billion Special Drawing Rights (SDRs) until 2024. During the Spring Meetings, IMF Managing Director Kristalina Georgieva called on shareholders to pledge $4.7 billion to close the loan resource gap to restore access to concessional financing for PRGT.

While such efforts are certainly welcomed, they will do little to improve the precarious economic condition many developing countries find themselves in. The impact of inflation and food insecurity exacerbated by Russia’s war in Ukraine is adding strain on public debt, with 60 per cent of low-income countries (LICs) already at high risk of or in debt distress, according to the IMF. While the current debt dynamics have not reached pre-HIPC levels, the world is dangerously close to a debt crisis. To address this growing challenge, some IMF representatives are calling on Western countries to provide a relief and aid package matching that of the landmark 2005 Gleneagles Summit deal, which would entail doubling the aid to Africa and developing a comprehensive package of debt relief to address the severe funding crunch affecting African countries. These calls are aligned with UN Secretary General Antonio Guterres, who has repeatedly demanded that Western countries increase their overseas development aid to support the implementation of SDGs.

While both the Bank and the Fund are declaratively committed to supporting SDGs within the scope of their mandate, they are outright rejecting that their work has any human rights implications, choosing instead to look at issues from a corporate investment perspective in terms of economic growth opportunities and debt repayment certainty, even at the expense of decreasing social protection. The IMF, for example, has long been ignoring the UN letter of allegation outlining concerns about the impact of IMF surcharge policy on human rights and it seems that only now there is some growing momentum amongst shareholders to revise the policy. The lack of a human rights focus can be further exemplified in the International Finance Corporation’s – the World Bank’s private investment arm – draft policy on remedy and responsible exit, which failed to acknowledge that the institution has a human rights obligation to remedy harms to which they have contributed and fell short of providing a comprehensive plan for delivering remedy to affected communities. In response, civil society organizations (CSOs) are calling on the World Bank to use the opportunity provided by the roadmap to align its operations with human rights development indicators to connect external financial sustainability, public-sector financial sustainability and the realisation of specific fundamental human rights.

World Bank gender strategy update: Human capital over human rights

Following confirmation that the Bank’s gender strategy update process is now delayed by six months, CSOs entered the Spring Meetings conscious that discussions about it would be overshadowed by the roadmap. Though a concept note is yet to be released, the Bank’s gender team maintained an enthusiastic front, reassuring civil society that the Bank remains committed to addressing the mass reversals in gender equality of recent years. While there was cautious optimism regarding Bank commitments to consult with heterodox feminist economists and expand gender commitments across Country Partnership Frameworks, the overall focus currently reflects more of what came before: Micro-level programme work focused on gender-based violence, increasing labour force participation and job creation, and ‘empowerment’ of women into leadership positions.

CSOs criticised the Bank’s continued use of private sector jargon, which reduces women to untapped sources of income. Such an approach will inevitably line the pockets of private corporations attracted to Bank-promoted ‘business enabling environments’ in return for precarious work, low wages and inadequate social protection, all of which disproportionally impact women. The dehumanising approach to gender at the Bank reflects wider civil society discontent with the Bank’s failure to include a human rights framing on grounds of the ‘political’ nature of such wording. On the 75th anniversary of the Universal Declaration of Human Rights, it’s crucial that the World Bank acknowledges that SDGs cannot be achieved without upholding human rights, and that anticipating the effect of loans and policy recommendations on human rights does not create inefficiency; rather, inefficiency is a consequence of the failure to meet basic human rights needs that would benefit the citizens of developing countries.

Democratic deficit continues, reaffirming need for a governance reform

Despite ambitious calls for reform at both BWIs, addressing their antiquated governance structures remains off-the-table for powerful shareholders. The gentleman’s agreement – forged at the Bank’s founding, when many of its current borrower countries had yet to gain independence from colonial rule – is alive and well, as US nominee Ajay Banga received support from Western countries before the nomination period for candidates to replace outgoing President David Malpass even ended. While some voices within the Bank maintain that Banga’s nomination should have failed due to his lack of experience in development – the first criterium in the job description – there is nonetheless limited opposition to the appointment of yet another president hand-picked by the US. Hopes for governance reform at the Fund also appear muted as the ambitions for the ongoing 16th Review of Quotas are constrained by the Fund’s antiquated power structure, which heavily favours the US, Europe, Japan and Australia. While the International Monetary and Financial Committee (IMFC) expressed a commitment to revise the quota formula and ensure the primary role of quotas in IMF resources, those ambitions now seem to be lowered to a simple equi-proportional increase in quotas, in which most shareholders would maintain their existing voting shares while increasing their financial contributions to the Fund, with perhaps some ad hoc reallocation of shares to emerging markets determined in closed-door negotiations. Alternative proposals, such as updating the formula variables with recent data for a more accurate reflection of the changes in the global economy or increasing the proportion of basic votes for a more equal representation of countries, seem to be unlikely to happen, as that would involve multilateral negotiations among shareholders with a low probability of consensus amidst growing geopolitical tensions. In the absence of a more transformative review, some shareholders expressed an appetite to add a third Sub-Saharan Africa chair to the IMF’s executive board, to increase the representation of the Global South. Indeed, geopolitical tensions were often invoked during the Spring Meetings as the main reason for the lack of progress on important issues and for reducing ambitions. The strained relationship with Russia was often framed as the main reason for limited discussions on a new allocation of SDRs to respond to the global need for liquidity exacerbated by the effects of the current polycrisis. Similarly, China was used as a scapegoat for the deadlock in debt restructuring within the G20 Common Framework, with high-income countries failing to acknowledge more nuanced dynamics involving the growing diversity of the creditor basket and the need to involve the private sector and – potentially – multilateral development banks in debt restructuring efforts.

In such a difficult geopolitical context, the lack of leadership on the global stage is painfully visible. The US is largely taking a reactionary approach, blocking efforts for real reform which would involve a more equal power distribution within the World Bank and the IMF and, instead, is using these institutions to further its short-sighted geopolitical interests, with the most recent example being the approval of a $15 billion IMF loan to Ukraine under a new Extended Fund Facility Arrangement, as part of an overall support package of $115 billion. This support was available only after the Fund changed its rules to allow loan programmes for countries facing “exceptionally high uncertainty” – and marks the first time the Fund has lent to a country involved in active military conflict.

photo of different currencies

While supporting Ukraine is undeniably necessary, other countries in urgent need of financing are unfortunately receiving far less consideration. Such a narrow short-term approach towards addressing the current crises risks exacerbating social tensions, fragility and violence, further endangering the social fabric in many countries.

As geopolitical tensions and lack of leadership continue to paralyse the BWIs, alternative multilateral financial institutions with a competing mandate such as the New Development Bank or the BRICS Contingent Reserve Arrangement may grow in regional influence, further widening the fragmentation that is undermining multilateral consensus. In response, CSOs have mobilised, calling for governance reform at the World Bank and IMF to meet the challenges of the 21st century, including by organising a dedicated event on the side-lines of the Spring Meetings, bringing together concerned organisations and individuals from around the globe to discuss concrete proposals for action to ensure a more just distribution of resources and power at the Fund and the Bank.

the Future of the Bretton Woods Agreement and Concerns over shrinking civil society space and waning BWI staff CSPF enthusiasm

Such events will likely become more popular as civil society activists have seen their space shrinking considerably in recent years. Further flags were raised during these Spring Meetings about last minute no-shows from IMF and World Bank representatives on CSPF panels, a frustrating experience when many have travelled across the globe solely for airtime with official representatives. Moreover, Southern civil society colleagues are cognisant of issues they may face at the upcoming Annual Meetings in October in Marrakech and have urged the BWIs to be proactive in ensuring there is open civil society space, free from detention or reprisals, particularly for CSOs from the MENA region. Despite Bank and Fund assurances that visas and registration will not be an issue, concerns about delays and passport privilege filtering out Southern participants remain.

While the global outlook looks grim, hopes remain that a transformative reform of the global financial architecture is possible. After all, global change needs only a few key things: The context of a crisis, anger and mobilisation by citizens and a tipping point to drive governments into action. It remains to be seen whether the Bank and Fund – given their imbalanced governance structures that over-privilege creditor countries – have a leading role to play in driving the change.

The Bretton Woods Conference

Photo of the original Bretton Woods agreement

The Bretton Wood Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 allied nations at the

Mount Washington Hotel in Bretton Woods, New Hampshire, United States to regulate the International Monetary and financial order after the conclusion of World War 2.

The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established the International Bank of Reconstruction and Development which became the World Bank and the International

Monetary Fund. This led to what was called the Bretton Woods system for international commercial and financial relations.


Speech by Christine Lagarde, President of the ECB, at the Council on Foreign Relations’ C. Peter McColough Series on International Economics

Central banks in a fragmenting world

New York, 17 April 2023

It is a pleasure to be here in New York.

The global economy has been undergoing a period of transformative change. Following the pandemic, Russia’s unjustified war against Ukraine, the weaponisation of energy, the sudden acceleration of inflation, as well as a growing rivalry between the United States and China, the tectonic plates of geopolitics are shifting faster.

We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.

All this could have far-reaching implications across many domains of policymaking. And today in my remarks, I would like to explore what the implications might be for central banks.

In short, we could see two profound effects on the policy environment for central banks: first, we may see more instability as global supply elasticity wanes; and second, we could see more multipolarity as geopolitical tensions continue to mount.

A changing global economy

In the time after the Cold War, the world benefited from a remarkably favourable geopolitical environment. Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded. This led to a deepening of global value chains and, as China joined the world economy, a massive increase in the global labour supply.

As a result, global supply became more elastic to changes in domestic demand, leading to a long period of relatively low and stable inflation. That in turn underpinned a policy framework in which independent central banks could focus on stabilizing inflation by steering demand without having to pay too much attention to supply-side disruptions. See Blog Post Force Majeure:

But that period of relative stability may now be giving way to one of lasting instability resulting in lower growth, higher costs and more uncertain trade partnerships. Instead of more elastic global supply, we could face the risk of repeated supply shocks. Recent events have laid bare the extent to which critical supplies depend on stable global conditions.

That has been most visible in the European energy crisis, but it extends to other critical supplies as well. Today the United States is completely dependent on imports for at least 14 critical minerals. And Europe depends on China for 98% of its rare earth supply Supply disruptions on these fronts could affect critical sectors in the economy, such as the automobile industry and its transition to electric vehicle production.

In response, governments are legislating to increase supply security, notably through the Inflation Reduction Act in the United States and the strategic autonomy agenda in Europe. But that could, in turn, accelerate fragmentation as firms also adjust in anticipation. Indeed, in the wake of the Russian invasion of Ukraine, the share of global firms planning to regionalize their supply chain almost doubled – to around 45% – compared with a year earlier.

This “new global map” – as I have called these changes elsewhere – is likely to have first-order implications for central banks.

One recent study based on data since 1900 finds that geopolitical risks led to high inflation, lower economic activity and a fall in international trade. And ECB analysis suggests similar outcomes may be expected for the future. If global value chains fragment along geopolitical lines, the increase in the global level of consumer prices could range between around 5% in the short run and roughly 1% in the long run.

These changes also suggest that a second shift in the central bank landscape is taking place: we may see the world becoming more multipolar.

During the Pax Americana after 1945, the US dollar became firmly ensconced as the global reserve and transaction currency, and more recently, the euro has risen to second place.

This had a range of − mostly beneficial − implications for central banks. For example, the ability of central banks to act as the “conductor of the international orchestra” as noted by Keynes, or even firms being able to invoice in their domestic currencies, which made import prices more stable.

In parallel, Western payments infrastructures assumed an increasingly global role. For instance, in the decade after the Berlin Wall fell, the number of countries using the payments messaging network SWIFT more than doubled. And by 2020, over 90% of cross-border transmissions were being signaled through SWIFT.

But new trade patterns may have ramifications for payments and international currency reserves.

In recent decades China has already increased over 130-fold its bilateral trade in goods with emerging markets and developing economies, with the country also becoming the world’s top exporter. And recent research indicates there is a significant correlation between a country’s trade with China and its holdings of renminbi as reserves. New trade patterns may also lead to new alliances. One study finds that alliances can increase the share of a currency in the partner’s reserve holdings by roughly 30 percentage points.

All this could create an opportunity for certain countries seeking to reduce their dependency on Western payment systems and currency frameworks – be that for reasons of political preference, financial dependencies, or because of the use of financial sanctions in the past decade.

Anecdotal evidence, including official statements, suggests that some countries intend to increase their use of alternatives to major traditional currencies for invoicing international trade, such as the Chinese renminbi or the Indian rupee.We are also seeing increased accumulation of gold as an alternative reserve asset, possibly driven by countries with closer geopolitical ties to China and Russia.

There are also attempts to create alternatives to SWIFT. Since 2014, Russia has developed such a system for domestic and cross-border use, with over 50 banks across a dozen countries using it last year.

And since 2015 China has established its own system to clear payments in renminbi.

These developments do not point to any imminent loss of dominance for the US dollar or the euro. So far, the data do not show substantial changes in the use of international currencies. But they do suggest that international currency status should no longer be taken for granted.

Policy frameworks for a fragmenting world

How should central banks respond to these twin challenges?

We have clear examples of what not to do when faced with a sudden increase in volatility. In the 1970s, central banks faced upheaval in the geopolitical environment as OPEC became more assertive and energy prices that had been stable for decades ballooned. They failed to provide an anchor of monetary stability and inflation expectations de-anchored – a mistake that should never be repeated for as long as central banks are independent and have clear price stability mandates. See Blog Post

photo of glass globe

So, if faced with persistent supply shocks, independent central banks can and will go ahead with ensuring price stability. But this can be achieved at a lower cost if other policies are cooperative and help replenish supply capacity.

For example, if fiscal and structural policies focus on removing supply constraints created by the new geopolitics – such as securing resilient supply chains or diversifying energy production – we could then see a virtuous circle of lower volatility, lower inflation, higher investment, and higher growth. But if fiscal policy instead focuses mainly on supporting incomes to offset cost pressures (in excess of temporary and targeted responses to sudden large shocks), that will tend to raise inflation, increase borrowing costs and lower investment in new supply.

In this sense, insofar as geopolitics leads to a fragmentation of the global economy into competing blocs, this calls for greater policy cohesion. Not compromising independence, but recognising interdependence between policies, and how each can best achieve their objective if aligned behind a strategic goal.

We could see the benefits of this in Europe especially, where the multiplier effect of common action in areas such as industrial policy, defence and investing in green and digital technologies is much higher than Member States acting alone.

There is another benefit, too: achieving the right policy framework will not only determine how our economies fare at home, but also how they are viewed globally in a context of greater "system competition”. And while the international institutions established in the wake of Bretton Woods remain instrumental for fostering a rules-based multilateral order, the prospect of multipolarity raises the stakes for such internal policy cohesion.

For a start, an economic policy mix that produces less volatile growth and inflation will be key in continuing to attract international investment. Although 50-60% of foreign-held US short-term assets are in the hands of governments with strong ties to the United States – meaning they are unlikely to be divested for geopolitical reasons – the single most important factor influencing international currency usage remains strength of fundamentals.

By the same token, for Europe, long-delayed projects such as deepening and integrating our capital markets can no longer be viewed solely through the lens of domestic financial policy. To put it bluntly, we need to complete the European capital markets union. This will be pivotal in determining whether the euro remains among the leading global currencies or others take its place.

Central banks also have an important role to play here – even as protagonists.

For example, the manner in which swap lines are used could influence the dynamics of major international currencies. Both the Federal Reserve and the ECB, within their respective mandates, have been proactive in providing offshore liquidity when recent crises have hit. But others are moving too, which is consistent with a rising role of their currencies. We have already seen the People’s Bank of China set up over 30 bilateral swap lines with other central banks to compensate for the lack of liquid financial markets in renminbi.

How central banks navigate the digital era – such as innovating their payment systems and issuing digital currencies – will also be critical for which currencies ultimately rise and fall. This is an important reason why the ECB is exploring in depth how a digital euro could best work if launched.

So, we need to be ready for the new reality that may well lie ahead. The time to think about how to respond to changing geopolitics is not when fragmentation is upon us, but before. Because, if I may paraphrase Ernest Hemingway, fragmentation can happen in two ways: gradually, and then suddenly.

Central banks must provide for stability in an age that is anything but stable. And I have no doubt that central banks will measure up to the challenge.

Thank you.


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