How are the rising powers challenging the USA and Western dominance in the IMF and the World Bank?. (UPSC CSE Mains 2019 - Political Science and International Relations, Paper 2).
- Western powers, particularly the United States (US), predominate the two major post-World War international financial institutions, the International Monetary Fund (IMF) and the World Bank. The US is the only country with sufficient voting power to have a de facto veto right in both these institutions over certain decisions. However, with the rise of emerging economies such as China, India, Brazil and South Africa, Western dominance in these institutions appeared to be in trouble. Emerging economies have redefined every aspect of global economic interactions, including the hegemony of the US and other advanced economies in the IMF and the World Bank.
- Rising powers challenge the US and Western dominance in international financial institutions primarily in two ways. First, they demand and persuade a reformed IMF and World Bank with greater voting power to emerging market economies. With this aim, in the wake of the 2008 global financial crisis, emerging market economies supported the empowerment of these institutions. In 2009, rising powers proposed transferring seven per cent of the Western economies'' IMF quota to emerging economies. Next year, IMF agreed on the redistribution of voting shares and decided that six per cent of the IMF quota share should be transferred to rising economies and developing states. This quota reform and doubling of IMF permanent capital resources helped emerging economies, especially Brazil, China, India, and Russia, enhance their influence in the institution, including the Executive Board.
- Apart from the call for reform of post-World War international financial institutions, emerging economies also established their own institutions to counter the hegemony of Western institutions. The formation of the Asian Infrastructure Investment Bank (AIIB), the BRICS New Development Bank and the BRICS Contingent Reserve Arrangement (CRA) are examples. These new multilateral funding agencies provide challenges to the World Bank Group of institutions. Moreover, rising powers, especially China, also call for replacing the US dollar as the international reserve currency.
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