It was seventy one years ago, in July 1944, that delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA, to establish a new system to regulate the international monetary and financial order after the Second World War. The U.S. was already the world’s commercial powerhouse, having eclipsed the British Empire several decades earlier. And so, Bretton Woods was U.S.-dominated and produced a settlement largely on U.S. terms. Since then, global commerce has been conducted largely in dollars and leading economies have held the greenback as their primary reserve currency. This remained unchanged today, with the lion’s share of commercial settlements worldwide still clearing the U.S. banking system – even if the parties involved have nothing to do with the States.
The dollar’s supremacy continues to be cemented, meanwhile, by the operations of the International Monetary Fund and World Bank. Founded at Bretton Woods, these two institutions are based in Washington, of course, and controlled by America, despite some Francophone window-dressing. Obviously, this system gives huge advantages to the US. “Reserve currency status” generates huge demand for dollars from governments and companies around the world, as they’re needed for reserves and trade. This has allowed successive American administrations to spend far more, year-in year-out, than is raised in tax and export revenue, as it can pay for imports in dollars the Federal Reserve can just print.
It is the status of the dollar, above all, that’s allowed Washington to get its way, putting the financial squeeze on recalcitrant countries via the IMF while funding foreign wars. To understand politics and power it pays to follow the money. And for the past 70 years, the dollar has ruled the roost.
This won’t change anytime soon. But something just took place which illustrates that dollar reserve currency status won’t last forever and could be seriously diluted. For now, the establishment of the New Development Bank, whatever diplomatic niceties are put on it, is intent on competing with the IMF and World Bank.
Be that as it may, Africa needs the new BRICS bank only if it is more equitable, more transparent, and more tilted towards ensuring that the needs of poor countries are given priority. Africa needs a new BRICS bank if it brings ‘genuine’ development, namely sustainable economic transformation, industrialization and job creation. Africa needs the New Development Bank if it offers a real alternative from the existing International financial institutions i.e. the World Bank and IMF.
Now, $50 billion in starting capital may not look huge by today’s count. This will only allow the new bank to lend an estimated $3.4 billion annually. That’s too small compared with the World Bank, which lends more than $60 billion each year.
I suppose one would say, it's not about what it is, it’s about what it can become.