The role of the IMF is transitioning as a result of the complexities and challenges posed by the shift of the world order from a unipolar to a multipolar system.
Before analyzing the role of the IMF in different structures of the world system, it’s important to give attention to multipolarity. Multipolarity is basically the equal distribution of power where more than two states possess equal economic, cultural, political, and military power in the international arena. Multipolarity usually results from changes in global economic dynamics, political alliances, and technological improvements.
In the early twentieth century, the world structure turned bipolar due to two great wars and other regional conflicts. But just after the end of the Cold War in 1991, the world system was dominated by the hegemonic power of the US. Yet in the twenty-first century, a great transition occurs in the world system, shifting the unipolar world into a new world system where several states enter the international power race. Emerging powers like China, Russia, France, India, and others have challenged US dominance. In such an evolving global landscape, geopolitical competition, economic dependence on major powers, and several other security concerns can pose risks for smaller states. While the situation also presents some opportunities, like better diplomatic relationships between states through alliances, economic benefits, and preventing dominance by any single entity, Beyond all these things, what the study is going to consider is the fluctuating role of the IMF in the transforming world order.
Since its establishment in 1944 at the Bretton Woods Conference, the IMF has always played an important role in facilitating trade at the international level and providing financial aid to all states, especially those with a lower GDP. However, during the unipolar world system, almost all of its policies were dominated by the US. Up until the 1970s, due to the dollar-gold link imposed by the Bretton Woods system, the US was somewhat restricted from completely dominating the World Bank and IMF. But since the breakup of this link in 1971, the US has shaped its monetary policy on the basis of its own objectives. Being the country with the largest GDP, the US uses its position to set fiscal policies almost entirely on the basis of its own aims and targets, neglecting the interests of other states. One such example is the escalation of the federal reserve rate in 1979 (17.60%). This shooting up of the Fed rate was just to control US inflation while taking no account of its impact on other states. This action clearly shows that America bethought to rule the world on its own script. In such a situation, when the US held authority over the IMF and the World Bank, the IMF was unable to restrict the US from neglecting the interests of other states.
This is not to say that during unipolarity, the US played a completely damaging role in the world economy. Of course, it was the strongest force to provide safe assets to the rest of the states. It had also played a responsible role several times during crises. Above all, behind gaining this specific position, America has put forth its efforts. But in the long run, the dominance of the US poses self-fulfilling crises for other states. The increasing demand for safe assets on a global level and the arrival of different competitors in the world economic race have shifted the role of the IMF to a great extent.
Due to the rising multipolarity, the focus has been shifted outside the previous core. The formation of the G20 after the G7, the rise of China as a strong economic power, and the increasing share of other developing states in the world economy had become ringing alarms for the US. The governance reforms passed by the IMF in 2010 and commitments made at the G20 summit clearly reflect the effect of multipolarity on the IMF. The new global reforms propose multilateral cooperation. With the increasing multipolarity of the world, the emerging economies are directly affecting the policies of the IMF, restricting the authority of any specific states. The governance and policy implementation of the IMF are now not completely dependent on any specific state. Thus, it provides a safer financial asset to countries all over the world.
This globalized governance of the IMF also poses some weaknesses. It can result in the clashing of preferences among states based on their own objectives.
To address such risks and imbalances, cooperation is needed among the countries. For this purpose, the IMF has fixed up its monitoring procedures. The external sector report has been introduced to analyze the externalities. To minimize the associated risks, it overhauled its framework to keep an eye on member countries’ policies. In time, global innovations from the southern states and other newly emerging countries can also be expected.
The writer is a student of “International Relations” at the “International Islamic university Islamabad” and a member of PYDIR.