The Future of Bretton Woods

Keynote speech by IMF Acting Managing Director David Lipton
At the Bretton Woods: 75 Years Later – Thinking About the Next 75 Conference
Hosted by the Banque de France

July 16, 2019


Good afternoon! Thank you, Governor Villeroy de Galhau, for convening such an eminent group to celebrate the 75th anniversary of the Bretton Woods Institutions.

I know Christine Lagarde was looking forward to addressing you today. But once again the IMF is in a time of transition. Fortunately, we are accustomed to that.  A key theme of my remarks today is that the IMF is an institution built to adapt to change.

Don’t worry — in Christine’s honor, I will be sure to quote from one or two historical figures.  

I am especially pleased that two former IMF Managing Directors, Jacques de Larosière and Michel Camdessus, are with us today. I served under both early in my IMF career. Two men who know quite a bit about change at the IMF.

Despite 75 years of history, the Bretton Woods Institutions have aged gracefully. Our collaboration is as strong as ever. I would like to thank David Malpass and Roberto Azevedo for continuing our excellent relationships.

Speaking of famous partnerships, those of you who have seen the most recent edition of the IMF’s Finance and Development quarterly may have noticed a conversation Madame Lagarde had with John Maynard Keynes.

In this imagined meeting, Lord Keynes and Madame Lagarde enjoyed a chat about the Fund.

He was glad the Fund has successfully adapted to many challenges over the years and, most of all, that our commitment to pursuing economic and financial stability in a multilateral and rules-based setting has held firm.

What if we could hop in a time machine — perhaps borrowed from Keynes’ friend H.G. Wells — and leap forward 25, 50, or even 75 years ahead from the present? What would the world and the IMF look like?

I would hope that Lord Keynes would still recognize us — promoting global growth and stability and adapting to the needs of our members. That forward journey is what I would like to discuss with you today.

But first, let us briefly consider the past.

The Past 75 years

The architects of Bretton Woods were deeply influenced by events between the two world wars, when multilateralism and the liberal international order broke down amid protectionism, the malfunction of the gold standard, and competitive devaluations.

The implosion of world trade deepened the Great Depression and ultimately gave fuel to fascism, communism, and war.

But in the aftermath, lessons were drawn. There was a new-found appreciation of how much national and global economic interests were interconnected.

The founders at Bretton Woods resolved that economic development and global financial stability are necessary conditions for peace.

In the words of Queen Elizabeth II, they “built an assembly of international institutions to ensure that the horrors of conflict would never be repeated.”

It was the original multilateral moment.

We know the results. Tremendous gains in human wellbeing — life expectancy, educational attainment, child and maternal mortality. Global GDP per capita is five-fold higher than in 1945. Over one billion people breaking free of poverty. And billions more reaping the mutual benefits generated from trade.

I have been proud to spend much of my career at the institution that has been central to this story.

Over the years, there has never been a Bretton Woods II, yet we are a very different institution than at our founders’ time. So how did that happen?  It is because we continuously adapt to the changing circumstances around us.

Lord Keynes would have been pleased to see the IMF pivot from the Bretton Woods system of fixed exchange rates to the era of flexible rates.

And how we addressed the Latin America debt crises, starting during the tenure of Jacques de Larosière. 

Then how we helped to transition economies emerging from communism and enabled many finally to join the Fund; and how we have addressed what Michel Camdessus dubbed the 21st century crises — those that arose from the explosion of cross-border capital flows.

As we look to the next 75 years, the IMF will need to continue to adapt. That is already well underway.

Let us consider what we may face in the decades ahead.

  • First, how shifting economic and financial power will affect the role of the Fund.
  • Second, how technological change will transform economies, creating new opportunities and policy challenges, including in financial services.
  • Third, how new threats to multilateralism will test whether the Bretton Woods Institutions remain relevant.

Major Shifts in Economic Activity

Let me first turn to the ongoing shifts in the global economic landscape.

Since those 44 country delegations met at Bretton Woods, the IMF has grown and now has 189 members, almost the entire world economy.

That means while we can address issues on a global scale, the roles and interests of our membership are also changing.

The rise of China and other economies fundamentally alters the global landscape. As emerging market and developing economies grow and incomes converge, the 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 the advanced economies will gradually consume savings even as younger countries need to finance investments. And in the not-too-distant future, rising life expectancy and declining fertility rates likely will bring the issues of aging to the entire world.

This will have profound implications for global trade and capital flows.

The hubs of economic activity will shift over the coming decades. New financial centers will grow in importance. New reserve currencies may eventually emerge.

Throughout all that, it is our duty to maintain an international monetary system stable and robust enough to facilitate the economic adjustments accompanying these transitions.

Free trade, flexible exchange rates, and non-disruptive capital movements are essential ingredients for a thriving global economy. That is why the role of multilateral institutions — and especially the IMF — will be more relevant than ever. If we continue to adapt.

Fortunately, our founders had the wisdom to embed in our governance a quota-based system. They recognized the illusory logic of one-country one-vote for an organization like ours.  Over our history and on into the future, this approach allows governance to adjust to the rising prominence, interests, and responsibilities of fast-growing members. Many international organizations do not have this built-in flexibility and find that some members feel they lack the influence they deserve.

Yet the Fund’s governance must continue to evolve further. For that to happen we must remain a quota-based institution.  And we must reckon with the fact that our formulae have not fully kept pace. We cannot expect to retain the global reach and resources that we need unless countries gaining in economic importance and ready to take on commensurate responsibility gain appropriately in their say at the Fund.

Similarly, we have to continuously align the Fund’s tools and policies with these changing economic realities. The inclusion of the renminbi in the SDR basket a few years ago demonstrated our ability to change with the times.

The bottom line is this: as economic power becomes more diverse and diffuse, retaining a focus on common challenges will become more difficult. So, the IMF’s fundamental role as global convener, trusted advisor, and financial firefighter will become even more important in the days ahead.

Adapting to New Technology

But what about the other changes in the global economy?

Technological advances offer enormous opportunities to accelerate productivity and lift incomes. But they also lead to structural changes — creating some jobs while displacing others.

Lord Keynes himself warned back in the 1930s about the possibility of “technological unemployment.” But he believed it would lead to a high-income world where people would choose more leisure time over work.  

This turned out differently. People are anxious that constant technological advances — think about artificial intelligence — will threaten their jobs and incomes. I will come to the future of work in a moment. Let me first address a different dimension of technology — innovation in financial services.

What we call ‘Fintech’ offers the potential to significantly increase efficiency and transparency in the financial sector. It poses challenges for established players, and regulators trying to address new sources of risk.

There are very real downsides to these developments, including significant threats from cyber-attacks and cyber-criminals. Yet, we are on the cusp of a transformation that could bring enormous benefits.

By fostering competition, we can help re-orient the financial services industry closer to better serve the real economy and foster job creation.

Look at Fintech’s capacity to end financial exclusion for the 1.7 billion people in developing countries who have no access to banking.

Much has been said about the impact of mobile banking in Africa, a continent that needs to create 20 million jobs a year in the decades to come, just to keep up with population growth.

That is why, together with the World Bank, we developed the Bali Fintech Agenda, a framework to help our member countries take advantage of innovation, but also better cope with the new risks.

One aspect of particular relevance has been the nascent development of central bank digital currencies, and the possible emergence of privately-backed “stablecoins” for digital payments. This was highlighted by the recent attention given to Facebook’s Libra. These new instruments aim to do for payments what the internet has done for information: make transactions secure, instantaneous, and nearly free.

Yesterday we published a new paper that highlights the benefits, risks, and regulatory issues that are likely to emerge in the years ahead with digital currencies.

The benefits are clear — ease of use, lower costs, and global reach. But what about the risks?

We have identified several: the potential emergence of new monopolies, with implications for how personal data is monetized; the impact on weaker currencies and the expansion of dollarization; the opportunities for illicit activities; threats to financial stability; and the challenges of corporates issuing and thus earning large sums of money — previously the realm of central banks.

So, regulators — and the IMF—will need to step up. We need to create an environment where the benefits of this technology can be reaped while the risks are minimized.

This is what I mean when I talk about an IMF that is always adapting. When a challenge affects our members’ economic well-being, we must be ready to be there.

Tackling Threats to Global Prosperity

While we adapt to technological transformations, we cannot lose sight of the other pressing concerns.

Our world is experiencing a broader set of changes that are contributing to a breakdown of trust and social cohesion, especially in the advanced economies. Trade and globalization — along with technology — have reshaped the economic map, and the fallout is front and center here in Europe, as well as in the United States:  rising anger, political polarization, and populism. We are at risk of what one could call a reverse Bretton Woods moment.

Part of the problem is the rise of excessive inequality. This is both a national and a global challenge. 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.

Moreover, for many developing countries, convergence with high-income countries has stalled. Just four years ago, we 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.

Some see an inherent flaw in capitalism. I do not agree. Capitalism rewards risk-taking. It has been the engine behind so much of the success we have experienced. But it is an imperfect system in need of a course correction.

We must prove that the benefits of globalization outweigh the costs and that integration can help to address our shared challenges. But right now, in many areas, we are losing that argument. So, we need a roadmap. Where can we start?

  • First, we can use fiscal policy to help address inequalities. This has been a part of the economic toolkit for many years, but the Fund recently developed a framework for social spending to help our member countries in the years to come.
  • While we help countries raise the revenues needed for future spending, it is essential to ensure fairness and a level the playing field. That means that in the realm of global corporate taxation we must close loopholes, forestall profit shifting, and avoid a race to the bottom.
  • A related point. We need to fight against illicit financial flows and money laundering because corruption undermines trust in all facets of society.
  • Another important priority is modernizing the international trade system, including in services and e-commerce. This will help reduce the trade tensions that threaten to undermine global growth.
  • When it comes to global growth, every country should empower women. Back at Bretton Woods, the role of women was limited to secretarial support. Much has changed since then, thank goodness. But about 90 percent of countries still have legal barriers to female economic participation. Realizing the massive potential of women is an economic no-brainer and must be a priority.

And last — but certainly not least — we must accelerate our response to climate change. Climate change presents one of the greatest challenges of the century — as recognized in this city in 2015.

The economic consequences if we don’t act will be dire.

That is why we are increasingly engaging our membership on mitigating and adapting to climate change, advising on energy subsidies and carbon pricing. We are also helping countries to enhance their resilience to natural disasters.

Now, Lord Keynes might be surprised at some of this, but I think he would be pleased that the Fund is a forward-looking problem solver.


Now, I promised I would try to follow Madame Lagarde’s lead. So, in honor of our hosts, let me borrow from Alexandre Dumas, who wrote: “All human wisdom is contained in two words — wait and hope.”

If you will allow me a suggestion for this Bretton Woods moment:

Hope, yes. But this is not a time to wait.

In the years ahead, we must all act — and act together — staying true to the values of our founders while pursuing the goals of stability, prosperity, and peace.

Thank you very much.

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