In 2024.7.4, UN Secretary-General António Guterres attended the summit of the Shanghai Cooperation Organization. During the meeting, Guterres said that the current international order, especially the international financial order, needs to be reformed and adapted to the world’s current development. He also emphasized that the UN is ready to make every effort to promote the international financial architecture’s adjustment, to create global governance that is more just, and more conducive to the common growth of developing countries. So why does today’s world financial order need to be reformed? What will happen if the reform is realized? To begin with, let’s learn about today’s financial order first. The three pillars of the world economy constitute the world economic order. There are three international organizations IMF, WB, and WTO.

International Monetary Fund(IMF), whose responsibilities are to monitor currency exchange rates and trade between countries, provides technical and financial assistance such as short-term loans to ensure the proper functioning of the global economic system. World Bank(WB), today its duty is to finance the countries’ fight against poverty. For example, it offers medium and long-term loans to those poor countries. World Trade Organization(WTO) has the goal of achieving world trade liberalization and optimal allocation of global resources.

The three pillars were mainly built due to the Bretton Woods Conference, in 1944. However, after years of development, the world financial system has suffered from many shortcomings. After the collapse of the Bretton Woods system, the United States was no longer obligated to stabilize the exchange rate. While the US dollar remains the main international reserve currency, the dollar problem has become a world problem.

Financial crises are easily transmitted along sharply fluctuating exchange rates just like the 2008 international financial crisis. Despite the rapid rise in the economy of developing countries, currencies remain unipolar and the US dollar remains at the core. Therefore, US domestic policy has strong spillovers and can cause serious consequences.

Beyond that, the IMF is accused of poor performance in economic crisis monitoring and slow and demanding delivery of emergency economic assistance. For WB, people think that its loans are unfair and it prefers to give loans to economies with development potential. For WTO, after the pandemic, global trade has been severely decoupled and protectionism has prevailed. At the same time, difficulties in reaching multilateral trade agreements have led to a halt in its development.

Then let’s talk about the effort people made to reform the financial order. To eliminate the impact of exchange rate fluctuations, super-sovereign currencies were mentioned. After the 2008 financial crisis, super-sovereign currencies were again proposed. The euro could be seen as a partial super-sovereign currency in the European region though it is not complete.

In addition, Special Drawing Right(SDR) reform is underway, with increased quotas in emerging markets, an expanding size of drawing rights, and improved voting patterns. IMF also improved its loan facility.

The role of emerging economies in financial reform also deserves attention. For example, the AIIB and the New Development Bank reflect their willingness to participate in global financial governance and improve their representation and status in global financial governance. G20 has also attempted to establish a global financial safety net to reduce risks.

While the realization of a super-sovereign currency must be supported by an administrative body that transcends national sovereignty, it’s more like an ideal goal and hard to achieve. Meanwhile, the IMF is still seriously out of touch with world economic development. SDR reform is also too small.

That’s the reason why we need a big financial reform. When the reform is realized, the world’s financial risks will be greatly reduced, monetary security will be improved, exchange rates will be more stable, and capital flows will be more convenient and safer. And the financial structure will be more suitable for today’s economic structure. All in all, the world’s financial operations will be healthier, more orderly, and safer. At the same time, just like the current state of reform mentioned above, we still have a long way to go.

By Le Tianyu