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From Unilateral to Multilateral

The International Monetary Fund is a global organization formed in the year 1944 with the core mandate to oversee the financial systems as well as macroeconomic policies in all the member countries. The main focus was on the financial as well as macroeconomic policies with a significant impact on the balance of payments and exchange rates. Its mandate is to develop capacity in order to facilitate the stabilization of the macroeconomic environment and more importantly facilitating economic development. The body has a well-developed professional capacity to advise member countries on the best policies to apply in the face of deferring economic conditions facing the country. The organization was to work with the World Bank to provide funds for strategic projects identified as key to the furtherance of the economic agenda within the member states. To date, the body has managed to offer leveraged loans and grants especially to poor countries in a bid to facilitate development.

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The organization was formed at the Britton Woods conference in the year 1944. The conference also dubbed the United Nations Monetary and financial conference comprised of 44 nations was converged to develop consensus on several rules to manage the monetary system for the period after the Second World War. The IMF and the International Bank for Reconstruction and Development (IBRD) were a result of the conference.

Apart from the formation of the two institutions, the conference sensitized member countries on the need to develop open markets. All the member countries were expected to be subscribers to the capital base under the IMF. By this time, the US was the unchallenged economic superpower and was thus expected to be the largest contributor to the capital. Therefore the IMF was set up to oversee and encourage the adoption of fixed exchange rates that were linked to the dollar. This essentially made the dollar develop into the modern global currency. Essentially this meant that the US could run a trade deficit without any need to devalue the currency. The US is the largest contributor to the fund got the highest number of voting rights giving it much authority over moist decisions.

The regulations developed were successful in ensuring that confidence was restored in the world economy after the war. Indeed the period this followed registered an economic boom world over. The rise of other economically powerful countries like China has put to strain the economic superiority of the U.S. China has managed to maintain an economic growth rate of about 10% for the past two decades and is said to pose a real threat to the American lead in the global economics.

As mentioned above, the functioning of the IMF is based on funding for member countries which determines the voting rights in the decision-making process. Ideally, the world arrangement has become bilateral. It is dominated by the relationship between the US and its close western allies and the rest of the world. This relationship manifests itself not only in economic frontiers but also in social as well as political aspects.

The rise of new economic powerhouses like China and India is causing jitters in the global power arrangements. China’s growth rate has seen its GDP rise to the highest amounts in the East at around $4.33 Trillion at current prices while that of the US stands at $14.2 Trillion. The most important point is that the growth rate in China is more than twice that of the US.

The fact that China is emerging as a new global power is giving it credentials for a stake in the control of the IMF. The country is not only involved extensively in export trade but has also garnered enough funds and can ably fund the IMF to the scale of other developed nations. This being the case, China is increasingly taking strong stands in matters concerning global economics.

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In the face of the recent economic recession with roots in the US, China has been hurt greatly due to the fall in exports caused by lower incomes as well as the weakening of the exchange rate for the US dollar a fact that has seen the rise of Chinese goods in the international markets. The country has reacted by advocating for a complete shift from the bilateral arrangement described above to a multilateral arrangement. The details of this are entangled in the call for the creation of a new global currency to be used in international trade as opposed to the dollar. The argument is that the US dollar has proved to be prone to the happenings in the domestic markets in the US a fact that has made other countries suffer. The calls are meant to eliminate the superiority of the American currency in comparison with others.

Indeed the country has also recommended that it allowed greater participation in the decision-making process at the IMF. This is due to the fact that it also has great participation in the global economy a fact which gives it an adequate mandate to fully participate in the decision-making process for decisions that have a significant impact on its economy. This call is not only being supported by the close eastern allies but also by most of the western superpowers including the US. The understanding is that China is now a significant global player and an effective response to the crisis of the magnitude witnessed from late 2008 has to be in full approval of the Chinese counterparts. Therefore cooperation by China has become of paramount importance to the world economy (China backs IMF voting changes, (2009, Para 2).

The restructuring of the IMF is now most eminent. China is not relenting on the push for voting rights in the organization. It has the support of several countries as evidenced by a resolution of the G20 in April 2009. The most opposition originates from the European member states who feel that it is their voting powers that will be eroded by the inclusion of China. However, analysts believe that by the year 2013 the contribution proportions will have changed with the inclusion of countries like China and India as these offer a better channel for the control of world economics and more important response to the crisis as the westerners view it. The east however views it as an emerging world balance of power as the eastern countries rise to counter the dominance of the west in world economics (Brown looks to China to strengthen IMF’s hand, 2008, Par3).

The assertion that the US will gradually lose its economic dominance is definitely can be said to be fairly accurate in the face of the current dynamics of the world economy. The Chinese economy seems to be on top gear generating all manner of efforts to accelerate the growth rate. In fact, its export-oriented economy gives a clear channel for economic dominance as it is visible across the globe. The country is now able to even afford significant aid to countries all over the world. It can fund projects across the globe and the economy is growing at several times the growth rate in America. All these indicators point to the ability of the Chinese economy to overturn the US lead.

However, it takes more than a high economic growth rate to become a dominant player in the global economy. According to global economic analysts, the fundamentals of the US economy are much stronger China. The future prospects of the US are also brighter despite the tough times being faced currently. First, the Chinese economy is set up to take up wealth from other countries rather than create wealth internally. Most of the GDP accounted for in China has been created elsewhere and transferred to china in the name of investments. As such the country succeeds by using other nations to boost itself. This is unlike the American system which has adequate capacities to create wealth internally and extend to other countries as a boost to the domestic economy.

In addition, The US contributes about a fourth of the world’s wealth. This is more than China, Japan, India combined with several other Asian countries. The ability of China to reach this level anytime soon is not a true reality. Again, the support enjoyed by the US through the EU is huge in comparison to the support to China by Asian counterparts.

References

Brown looks to China to strengthen IMF’s hand (2008). Guardian.co.uk.

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China backs IMF voting changes, (2009). CnnMoney.com. Web.

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StudyCorgi. (2021, November 24). From Unilateral to Multilateral. Retrieved from https://studycorgi.com/from-unilateral-to-multilateral/

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"From Unilateral to Multilateral." StudyCorgi, 24 Nov. 2021, studycorgi.com/from-unilateral-to-multilateral/.

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