China Obtains Dramatic Voting Rights Boost in IMF
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The US Senate recently agreed to changes to the International Monetary Fund’s voting rights. This ratification redistributed voting rights to give emerging economies a bigger role in the affairs and policy decisions of the international lender. Thanks to these reforms, China’s stake in the IMF’s affairs increased by almost 60 percent.
The US Senate recently agreed to changes to the International Monetary Fund’s voting rights. This ratification redistributed voting rights to give emerging economies a bigger role in the affairs and policy decisions of the international lender. Thanks to these reforms, China’s stake in the IMF’s affairs increased by almost 60 percent.
Prior to adoption of the reforms, China’s voting rights constituted a mere 3.8 percent of the IMF’s decision-making power. Following the change, its power jumped to 6 percent, and its resources doubled to about $660 billion. Similarly, India’s voting rights will increase from 2.3 percent to 2.6.
On the other hand, wealthier nations lost some of their voting clout. For example, the United States share dropped from 16.7 percent to 16.5, but it retains its veto power. In general, the biggest losers in this shake-up are European nations, almost all of which saw a decline in their voting clout.
According to Asia Times, these changes represent the biggest power shift in the IMF’s history, which, along with the World Bank, was established just after World War II.
The United States did not enter into this agreement lightly. Most of the IMF’s other members agreed to this shift in 2010 following the economic downturn of 2008. Although the United States actually proposed the change to the IMF’s voting policies (part of a plan to placate China), U.S. congressional Republicans raised concerns about diminishing American influence over the IMF (even if only by a faction of a percent).
When asked about the reforms, U.S. Treasury Secretary Jacob Lew said, “The IMF reforms reinforce the central leadership role of the United States in the global economic system and demonstrate our commitment to maintaining that position.”
Similarly, IMF chief Christine Lagarde applauded the United States for finally adopting the reform measures, saying it was “a welcome and crucial step forward that will strengthen the IMF in its role of supporting global financial stability.”
Not surprisingly, China also approved of the reform. Its Central Bank released a statement saying that the reform “will improve the representation and voice of emerging markets and developing countries in the IMF and is conducive to protecting the IMF’s credibility, legitimacy and effectiveness.”
Over the past year, China created the Asian Infrastructure Investment Bank. This institution could serve as an alternative to the IMF and the World Bank, and many in the global financial community have reason to fear the degree of influence China would exert over this institution. Thus, keeping China happy to participate in the IMF has served as a top focus for those in the U.S. administration who take responsibility for interfacing with the IMF and its members.
