The Future of Bretton Woods
IMF News, July 16, 2019
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- Published: July 16, 2019
Overview and context
- Keynote speech by IMF Acting Managing Director David Lipton at "At the Bretton Woods: 75 Years Later – Thinking About the Next 75 Conference" hosted by the Banque de France, July 16, 2019.
- Framed as reflections on past 75 years and guidance for how the IMF must continue to adapt over the next 75 years and beyond.
- Central themes: adapting to shifts in global economic power, technological change (including Fintech and digital currencies), and threats to multilateralism and global prosperity.
The past 75 years — historical assessment and institutional adaptability
- Bretton Woods architects reacted to the interwar breakdown of multilateralism, protectionism, gold standard malfunction, and competitive devaluations.
- Outcomes cited:
- Global GDP per capita is five-fold higher than in 1945.
- Over one billion people breaking free of poverty.
- IMF evolution highlighted:
- Pivot from fixed exchange rates to flexible rates.
- Responses to Latin America debt crises.
- Support for transition economies emerging from communism.
- Responses to 21st century crises from cross-border capital flows.
- Institutional design point:
- IMF governance is quota-based rather than one-country-one-vote, enabling adjustment to members’ rising prominence.
Major shifts in economic activity — findings and projections
- Membership and global reach:
- IMF has 189 members.
- Structural shifts and projections:
- Share of advanced economies in global output is expected to fall from more than one-half to about one-third over the next 25 years.
- Aging populations in advanced economies will gradually consume savings even as younger countries need to finance investments; rising life expectancy and declining fertility rates will bring aging issues globally.
- Hubs of economic activity will shift; new financial centers will grow; new reserve currencies may eventually emerge.
- Institutional implications:
- The IMF must remain quota-based and further evolve its governance and formulae so that countries gaining economic importance gain commensurate say.
- Tools and policies must be continuously aligned with changing economic realities (example cited: inclusion of the renminbi in the SDR basket).
Adapting to new technology — opportunities, risks, and IMF role
- Technology and labor:
- Technological advances can accelerate productivity and lift incomes but also displace jobs; reference to Keynes’ “technological unemployment.”
- Fintech and financial inclusion:
- Fintech can increase efficiency and transparency; potential to end financial exclusion for the 1.7 billion people in developing countries who have no access to banking.
- Africa cited as needing to create 20 million jobs a year in the decades to come to keep up with population growth.
- IMF and World Bank developed the Bali Fintech Agenda as a framework for members to harness innovation while coping with risks.
- Digital currencies, stablecoins, and regulatory issues:
- Nascent development of central bank digital currencies and privately-backed “stablecoins” (example referenced: Facebook’s Libra).
- IMF published a new paper (described as published "yesterday" in the speech) highlighting benefits, risks, and regulatory issues with digital currencies.
- Identified risks include:
- potential emergence of new monopolies and personal data monetization issues;
- impact on weaker currencies and expansion of dollarization;
- opportunities for illicit activities;
- threats to financial stability;
- challenges from corporates issuing and earning large sums previously the remit of central banks.
- Policy implication:
- Regulators and the IMF must step up to create environments that reap benefits while minimizing risks.
Tackling threats to global prosperity — inequality, trade, governance, and climate
- Social and political risks:
- Breakdown of trust and social cohesion in advanced economies linked to trade, globalization, and technology; rise in anger, political polarization, and populism described as a potential "reverse Bretton Woods moment."
- Inequality and convergence:
- Although poverty rates have declined worldwide since 1980, the top-tenth of the top one percent worldwide has garnered roughly the same economic benefits that have accrued to the bottom 50 percent.
- For many developing countries, convergence with high-income countries has stalled.
- Four years ago, IMF estimated it would take about half a century for low-income countries to reach advanced economy living standards; if global integration falters, it may take much longer.
- Policy priorities and recommendations:
- Use fiscal policy to help address inequalities; IMF developed a framework for social spending.
- Help countries raise revenues needed for future spending while ensuring fairness and a level playing field.
- Close loopholes in global corporate taxation, forestall profit shifting, and avoid a race to the bottom.
- Fight illicit financial flows and money laundering because corruption undermines trust.
- Modernize the international trade system, including services and e-commerce, to reduce trade tensions.
- Empower women: about 90 percent of countries still have legal barriers to female economic participation; removing these barriers is an economic priority.
- Accelerate response to climate change: IMF engages members on mitigating and adapting, advising on energy subsidies and carbon pricing, and helping countries enhance resilience to natural disasters.
Institutional prescription — the IMF’s continuing role
- Core IMF roles reiterated:
- Global convener, trusted advisor, and financial firefighter.
- Imperative:
- Continue adapting governance, tools, and policies to reflect shifting economic power, technological transformations, and threats to multilateralism.
- Closing exhortation:
- "Hope, yes. But this is not a time to wait." Call to act together to pursue stability, prosperity, and peace.
Source: Keynote speech by IMF Acting Managing Director David Lipton, "The Future of Bretton Woods," July 16, 2019.