Standing accused of sexual offenses, Dominique Strauss-Kahn (DSK) resigned a few weeks ago as the IMF's Managing Director. In this way, sex has become the determining factor of the world's policy-making, adding uncertainty to the outcome of the IMF's management re-organisation, already started at the time of DSK. Indeed, the vital question resulting from the change of IMF's managing director, is when the interests of the developed countries will be relieved of the institution’s leadership position. Will the IMF's management be more balanced, reflecting changed global power relations, and will its policy change accordingly? If so, what will happen to the role of the dollar and the euro as reserve currencies, together with the U.S. and Europe's global economic weight. Will the emerging regions, especially China, gain greater influence in the institution?
To cut to the middle of the flow of events: in the spirit of integrating emerging markets, in February 2010, DSK appointed Zhu Min, Vice-President of Bank of China, who obtained academic degrees in the United States, to be special advisor. Already, this step was to herald a new chapter. Since the establishment of the IMF, the managing director has been European, the deputy managing director from the U.S. (vice versa in the case of the World Bank) as an indication of who “pays the piper”. Now, someone from China also has a tuning fork in his hand ... At the time of Zhu Min’s appointment it was rumored that he might follow DSK in the managing director’s seat, if DSK becomes French President in 2011.
Being the Deputy Governor of Bank of China, this Zhu Min as early as 2007 warned the World Economic Forum in Davos that a huge risk lies in financial investments: anywhere, any second credit is available from the markets, people are purchasing securities without knowing how much risk they assume - he said[1]. At that time, not more than a few, widely-ignored “roomscientists” were talking about of the emergence of such a crisis. Starting his office term in June 2010 Zhu Min, emphatically expresssed his opinion about global economic imbalances[2]. In order to alleviate these imbalances the IMF should also work by taking steps in the interests of productivity and sustainability. In his statements, and at meetings of the IMF Executive Board, he explained the steps of the Chinese economic policy and defended the exchange rate policy on the yuan. In addition, as a result of the financial crisis, those voices[3] arguing for a basket-based clearing unit (currently consisting of US dollar, GB pounds, Euro and Yen) instead of the dollar as reserve currency intensified, with such a clearing unit enjoying SDR ("Special Drawing Rights ") since 1969, a trend supported by Zhu Min. For example, in February 2011 he long argued[4] to include the yuan in the special drawing rights, making it clear that this is a condition for a full convertibility of the Chinese currency. In short, Zhu Min has become a spokesman for China’s interests in the top circles of the IMF.
But the appearance of the Chinese man near the top of the IMF leadership is only a small but symbolic episode in the reform steps led by Strauss-Kahn, namely the transformation of voting power and quotas paid by the member countries.
The reforms were already underway in early 2008[5] raising quota, the voting power of 54 countries. These changes came into effect from March 2011, but the reform process is further advanced, and in the autumn of 2010 it became of "historical significance". In December 2010 the IMF Board approved the proposal for a doubling of contributions and the method of calculation and changes in the quotas and voting power, as DSK, said[6]: “It’s a very important increase in the voice and representation of the emerging market and developing countries…” The 2010 reforms can become the new statute, if member states support them with votes.
If these changes occur, the IMF’s top 10 shareholders will really represent the top 10 countries in the world, namely the United States, Japan, the four main European countries (Germany, France, the United Kingdom, Italy), and the four BRICs (Brazil, Russia, India, China). „The ranking of the countries is now really the ranking they have in the global economy,” said DSK, summarising the essence of the reform in November 2010, a week before the G20 meeting.
China's voting power will increase from less than 3% to 6%, making it the third Asian country to become the most influential the IMF ahead of Germany. The U.S. quota will essentially remain unchanged, but the voting power will decline from the pre-2008 17% to 16.5%, and the European Union’s voting power from 32.5% to 29.4%. The developed countries which previously held more than 60% voting power will decrease to 55.3%, and if the process does not stop, the balance can tilt even in favour of the developing and emerging countries, whose most powerful voting position is held by the Asian region. Though it would not be unfair, as since 2010, the world economic recovery led by the emerging countries headed by China and India, which in itself is a unique development: the developed countries contributed only 30% to growth.
Under the leadership of a Chinese IMF managing director this process is likely to continue to speed up. However, a Europe working for the rescue of the euro, led by Angela Merkel, does not want to release “the helm” of the world's leading financial institution. It also seems that the stakes are high. After all, market interests are at stake.
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