Image courtesy of the South China Morning Post
The following is an opinion contribution and reflects the author’s views alone.
In 1944, during WWII, Allied nations met at the Bretton Woods Resort in snowy New Hampshire to discuss how to revamp the global financial system once Nazi Germany was inevitably defeated. The International Monetary Fund, one of the institutions proposed during the conference, was ratified into existence the following year. It was founded with the purpose of helping to regulate exchange rates and sovereign monetary policy to help prevent another Great Depression. However, due to the international exchange rate stability experienced after WWII and till the present day, the IMF’s original purpose was lost. Ultimately, the IMF became a means to provide loans to poorer countries that make poor sovereign monetary policy decisions. The Soviet Union was part of the Bretton Woods conference, but it chose not to ratify and join the IMF due to what it perceived as an immense Western influence (it was right—every country that ratified and joined was either a Western liberal democracy or an authoritarian state aligned with the United States). As a result, the IMF would become dominated by the United States and its allies (the United Kingdom, France, and Japan). This would remain true even after the Cold War warmed up and then ended in the ’80s and communist countries, from Poland to Angola, joined the IMF.
The IMF may seem to be an obscure organization that only bureaucrats from developing countries and economists should be concerned with, but it is key to acquiring and maintaining hegemonic geopolitical control, and China knows this. The United States has maintained its dominance over international finance not just through the stability of its own currency, the dollar, but also through its loan practices and control of the IMF. In order to receive a loan from the IMF, a country must meet strict standards on democracy, support various freedoms and civil liberties, and have monetary policy transparency. There are exceptions, such as Zaire (now the Democratic Republic of the Congo), a notorious human-rights abuser and fifth-poorest country in the world, which was able to continuously receive loans from the IMF from 1976 till 1989 because its dictator was anti-communist and in league with the United States. Zaire was not alone; if a country couldn’t meet all IMF conditions, it could still get a loan by currying favor with the United States. Furthermore, countries that were capable of meeting all the conditions were almost always democracies aligned with the United States (such as Argentina and other Latin American countries).
The IMF wasn’t the only institution to be born from Bretton Woods in 1944. A sister organization, the World Bank, was also created. Like the IMF, the World Bank was created with a motive related to WWII and the Great Depression, but history would have other plans for it. The World Bank’s initial purpose of gathering and distributing funds to war-torn countries and helping them rebuild their infrastructure was usurped by the United States and its Marshall Plan. Instead, the World Bank would go on to provide funds to developing countries that needed assistance with infrastructure. Not unlike the IMF, the World Bank is influenced and dominated by the United States (the United States controls about 20% of votes within the governance of both the IMF and World Bank, which gives it the largest share of votes in both; furthermore, the IMF requires 85% of votes for a decision to pass and the World Bank requires 80%, effectively giving the United States a veto in both). In addition, adherence to democracy in the American sense and/or American geopolitical interests is an unofficial must if a country wants to acquire a loan from the World Bank.
The People’s Republic of China has sought to establish itself as the next great superpower, succeeding the Soviet Union and the United States, but the current system of international finance, one deeply interwoven with the United States, stands in its way. To circumvent this, China has sponsored a number of initiatives, most notably the Belt & Road Initiative (BRI) and Asian Infrastructure Investment Bank (AIIB). Both the BRI and AIIB are strategically ingenious organizations designed to simultaneously increase China’s standing in the world and provide an alternative to countries that need loans to maintain currency stability or invest in their economies and can’t acquire money from the US and Bretton Woods institutions because of their domestic politics.
Whenever a developing country requires currency assistance or wants a loan for investment in infrastructure, all it needs to do is become affiliated with the BRI, which usually requires only having positive diplomatic relations with China—that’s it. No strings attached. Well, typically a country must unofficially agree to not interfere with China’s domestic politics, but that’s a simple demand that’s inapplicable to most countries, and China reciprocates. For countries that are authoritarian human-rights abusers, or even US-aligned autocracies and democracies that want a quick loan and would have to wait for approval from the United States, China presents an alternative too lucrative for them to pass up. Many countries have already taken advantage of the BRI and AIIB. Sri Lanka, for example, used BRI funds to build a new port on its southern coast, and Turkey used AIIB funds to finance new rail lines. The BRI actively seeks out countries and offers them loans—and sometimes even grants—in exchange for enhanced trade with China. While this has been occurring, the United States has sat idly by, continuing to pursue its own failed policies of making fealty to itself and/or democracy a requirement to receive loans for maintaining currency stability and investing in infrastructure.
China will eventually surpass the United States with respect to geopolitical influence and international investment—it’s just a matter of time. In the early 1800s, before the age of European Imperialism, China’s economy (in terms of approximate GDP) under the Qing Dynasty accounted for 30% of global output, China has for all of the Common Era had the largest population in the world, and the current sovereign monetary policy and export-oriented economic policy of the Chinese Communist Party is almost infallible. All that remains is for America to choose how its own future will proceed. The United States could challenge China and remain competitive on a global stage either through its own version of a belt and road initiative or by reforming the IMF and World Bank to make it easier for developing countries to acquire the assistance they need. Or it could accept that the post-WWII international financial order will continue to decline, itself with it. For now, it appears the United States has chosen the latter.
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