Category: International Monetary Fund

As the number of BRICS member countries grows, the international organizations through which countries cooperate are at risk of fragmenting.  To keep the IMF, World Bank, WTO, WHO, ITU and other international bodies together to perform their financial, standard setting, and coordination functions that have contributed so much to global prosperity, each member must believe that they are fairly represented in such bodies.

Unlike the UN’s one country one vote, members of the International Monetary Fund and World Bank, have votes (quotas) that reflect their economic importance. The fundamental criteria for the financial contribution and voting share of each member country in the IMF and WB are the economic size of its economy and its share of world trade and reserves.

When they were established after WWII in 1944, the total size of the IMF was 8.8 billion dollars of which $2.9 billion was pledged by the U.S. giving it a quota (and vote) of 33% of the total. Any major policy decisions or amendments to the IMF’s Article of Agreement require an 85% support. This gave, and continues to give, the U.S. a veto over any important measure it doesn’t like. At that time the U.K. quota of $1.3 billion was 15% of the total and that of France was $0.65 billion or 7.4% of the total.

The Republic of China was an original member of the IMF in 1944, whose seat was transferred to the Peoples Republic of China in 1980 with a quota of 1.2 billion SDR which was 3.1% of the total of SDR 39.0 billion. “What are SDRs?” This was promptly increased to 1.8 billion SDRs (4.6%). The quotas and voting strength of the IMF’s six largest members in 1980 and 2022 were:

                        1980               2022

U.S.           19.83%               16.08%

U.K.             6.94%               4.03%

Germany    5.13%               5.31%

China           4.62%              6.08%

France.        4.57%              4.03%

Japan.          3.96%              6.14%

Over the last 4 decades, China and many other lower income countries have grown significantly. U.S. GDP in 1980 was $9.7 trillion in 2022 dollars while China’s was $1.03 trillion in 2022 dollars.  But by 2022 the US economy had double while Chinas increased almost 14 times. The adjustments in member quotas failed miserably to reflect these changes. The US quota dropped from 19.8% to 16.5% while China’s increased from 4.62% to 6.08%

In 2022 GDPs of the top five were:

1. United States: $20.89 trillion
2. China: $14.72 trillion
3. Japan: $5.06 trillion
4. Germany: $3.85 trillion
5. United Kingdom: $2.67 trillion
6. India: $2.66 trillion

To quote from Wikipedia: “To further rebalance power in the IMF, China appealed for changes that would transfer voting power to developing economies. In 2010, the Chinese executive director of the Fund, Zhou Xiaochuan, addressed the board and asserted that giving more power to the emerging economies was critical for the group’s legitimacy, accountability and long-term health.”

In the IMF/WB annual meetings that just concluded in Morocco have called for an increase in IMF resources but distributed equiproportionately, i.e., with no change in members’ relative voting weight (quotas). This moves member quotas even further away from the basic formula for determining them. Why and what might be the consequence?

The U.S. has dominated the IMFs policies from its inception largely in furtherance of developing and preserving a liberal trading order that has benefited the world. But it is apparently unwilling to give up its veto power (a quota of more than 15%). Such dominance risks corruption over time: “Monopolies”   “The Dollar Again”

But if the governance of the IMF is not seen as fair by its members, they have an incentive to look elsewhere. China understandably wants the status and influence of its increased size. So, Brazil, Russia, India, China, and South Africa (BRICS) have started to go their own way with China’s Belt and Road Initiative, Asia Infrastructure Investment Bank, and other China lead initiatives. More countries are joining the BRICS. The fragmenting of international norms and rules for cross countries relations threatens to harm global prosperity. As an early example, sovereign debt restructuring agreements are now being held up because of China’s reluctance to play ball with the term agreed by the other sovereign lenders.

U.S. and IMF—wake up. “Goodbye unipolar world and good riddance”