Sergey Storchak is a Senior Banker at VEB.RF, a Russian state development corporation and investment company, having formerly served as Deputy Finance Minister of the Russian Federation.
 

In a multipolar world, the most reliable way to safeguard national economic and financial interests is to actively and purposefully seize the opportunities offered by multilateral diplomacy—and, in this case, multilateral financial diplomacy. This stems from the obvious fact that, despite President Trump’s team’s attempts to unilaterally “make America great again,” global economic governance is ultimately exercised through multilateral financial institutions, organizations, associations, clubs, and other structures. These bodies play a critical role in promoting the sustainable development of the global economy, including, of course, that of the United States.

 

The recent difficulties faced by participants at COP29 in agreeing on a new collective quantitative goal for financing climate action in developing countries—as well as the divergent approaches of the Global South and Global North during the preparation of the outcome document for the upcoming Fourth International Conference on Financing for Development (to be held in Spain this summer)—have brought the issue of global economic governance (GEG) into sharp focus. Developing countries are increasingly unwilling to accept continued U.S. dominance in shaping and adopting decisions in these areas, as it is evident that neither the political nor financial capacity of the United States is aligned with today’s global economic realities.

BRICS’ New Development Bank, part of an emerging institutional alternative to Bretton Woods | Source: Guliver Image

 

The need to reform global economic governance is acknowledged in the documents of various international bodies. For instance, a joint 2023 report by the OECD and the United Nations Development Programme emphasized that “there is a need to transform global economic governance in such a way as to guarantee inclusiveness and thereby amend the obsolete and unfair international financial architecture in which developing countries remain underrepresented in decision-making bodies.” A similar position was echoed in the 2024 Kazan Declaration of the BRICS leaders.

 

Background

The international conference held in Bretton Woods in 1944 laid the foundation for multilateral financial diplomacy (MFD), although one of its outcomes was several decades of U.S. dominance in global economic governance. The tools used to consolidate American influence included the U.S. positions in the IMF and the International Bank for Reconstruction and Development (IBRD), as well as the Marshall Plan—whose declared goal was the post-war reconstruction of Western European economies. In reality, however, the plan aimed to reinforce European dependence on the United States, as payments for nearly the entire range of goods needed—from food and medicine to machinery and equipment—were financed through American loans, official aid, and credit provided by the IMF and IBRD. The political conditionality of such assistance was evident, although it was often disguised by commitments adopted, among other things, through Article IV and Article VIII consultations under the IMF’s Articles of Agreement. As debt from these loans accumulated, additional demand for dollars rose (as debt had to be serviced and repaid), thereby strengthening the position of the U.S. dollar as the dominant currency in the global economy and the international monetary and financial system (IMFS).

 

Within the context of global financial governance (GFG), a particular mechanism has always played—and continues to play—a significant role: the informal arrangement within MFD whereby the President of the World Bank Group is nominated by the United States, while European states select the Managing Director of the IMF. The importance attributed to this practice, informally agreed upon in a very different era, is evident. The nominee for the presidency of the World Bank Group must first be confirmed by the U.S. State Department and the Department of the Treasury, and then approved by the U.S. Congress. Furthermore, to ensure continued control over the institution, Washington has adopted the practice of initiating the re-election process for the President, typically 18 months before the incumbent’s mandate expires. This mechanism provides the U.S. establishment with a safeguard against potential surprises, including those tied to its domestic political cycle.

 

The U.S. position and voice in global economic governance have been decisive, both as the largest economy and as the principal source of cross-border financing—not only through official channels but also through private ones. This has led to the problem of global dollar liquidity, reinforcing the greenback’s special role in international trade settlements, investment flows, and debt and equity financing. As a result, foreign countries and their economic actors have become directly dependent on the health of the U.S. economy and, by extension, on U.S. interests. This dependency is often associated with the Triffin Dilemma, which essentially stemmed from the conflict between the U.S. need to run trade and payments deficits to provide global liquidity (through the dollar) and the risk this created for the stability of the U.S. dollar as a reserve currency, especially when the U.S. financial obligations grew relative to its gold reserves.

 

It took Western Europe, particularly France, several decades to grow dissatisfied with American financial dominance. The Fifth Republic began actively converting dollars into gold—a move that did not sit well with Washington. Eventually, in the early 1970s, the United States withdrew from the Bretton Woods Agreement on maintaining a fixed price for gold and imposed restrictions on the exchange of foreign dollar assets for gold. Nonetheless, the broader architecture of the IMFS—especially the IMF, its Articles of Agreement, and the obligations of member states—remained intact. This marked the beginning of a slow reform of the post-war global economic governance framework. The collapse of the colonial system, the emergence of the Non-Aligned Movement and its Declaration on the New International Economic Order, the formation of OPEC, and the rising economic and political clout of emerging market economies—all contributed not only to accelerating the reform process but also to making it permanent and, crucially, multilateral in nature.

 

Key Areas (Objects) and Stakeholders

Among the most significant and sought-after areas of interaction among participants in global economic governance (GEG) are what may be termed key “objects” of management and reform. These include international trade and foreign direct investment (FDI)—particularly cross-border settlements and payments; official development assistance and climate finance; cooperation on countering tax evasion; and so on. Each of these areas involves multiple levels of interaction, all of which are undergoing continuous reform. This is especially evident in the domain of international financial relations, including those linked to foreign exchange, lending, and various other forms of finance. Such relations encompass cross-border correspondent arrangements between commercial banks; interactions among participants in global and national financial markets—banking, debt, equity, and foreign exchange, among others; international debt management, which is especially critical for the Global South; and issues such as the calculation and payment of fees to international financial institutions (IFIs). These relationships can be bilateral—such as those between individual commercial banks—or multilateral, as seen in participation in clubs of mutual interest and in IFIs themselves.

 

The range of actors involved in GEG is vast and diverse. While the degree of influence these actors exert on the reform process varies significantly, this should not be grounds for excluding any of them from consideration.

 

As for global financial governance (GFG), its de facto reform is progressing along several key lines: rebalancing influence within the IMF and recalibrating its policies; enhancing financial regulation and supervision; updating the mandates and operations of multilateral development banks; mobilizing climate finance; and improving tax administration. However, unlike the last major systemic reform of GEG—which rightly traces its origins to the Bretton Woods Conference—today’s restructuring has not been accompanied by a coherent multilateral dialogue grounded in thorough theoretical research and broad-based stakeholder consensus. Instead, the current evolution of GEG and GFG reflects a fundamental shift in the global balance of power between developed economies and emerging markets. This reconfiguration has implications for all dimensions of international economic and financial relations.

 

Nonetheless, efforts to rebalance influence within GEG—leveraging the tools of multilateral financial diplomacy—have yielded several notable achievements: the creation of new institutions for financial regulation cooperation; the establishment of two multilateral development banks; and the conclusion of a number of regional arrangements aimed at strengthening international financial stability.

 

Reforming the IMF

The restructuring of the IMF has been the longest-running process in the broader reform of global economic governance. It began when emerging market economies—particularly China—refused to accept that their growing weight in the global economy did not translate into greater influence within the IMF. After two decades of negotiations across various forums, and under sustained pressure from these countries—coupled with some concessions from developed economies—the distribution of voting power within the Fund eventually shifted. The reforms of 2008 and 2010 resulted in a reallocation of more than 8 percent of quotas in favor of the Global South. However, this shift occurred on an ad hoc basis, emerging from political compromise rather than from a substantive revision of the quota formula itself—an outcome that remains a central demand of developing countries. By obstructing progress in this area—though the formula and its recalibration are the primary means of officially reflecting global economic change—the United States has protected its capital subscription in the Fund (about 17 percent), which grants Washington veto power over decisions it opposes.

 

Reform of the IMF has produced other significant outcomes. For instance, small European economies lost two seats on the Executive Board that they had held since Bretton Woods. The Board itself expanded from 20 to 25 members, with more directors now representing the Global South, and Africa gaining a second seat. A procedure was also introduced to revise the composition of the Board every eight years. Furthermore, multilateral constituencies—which comprise the vast majority of emerging market countries—were granted the right to appoint a second alternate director. Today, all Executive Board members are elected; the five countries that once appointed them—the United States, the United Kingdom, Germany, France, and Japan—have since lost that privilege. Meanwhile, China, India, and Russia have gained the right to nominate their own candidates independently. Notably, in 2011, a Chinese candidate was appointed IMF Deputy Managing Director for the first time.

 

The shift in influence at the IMF in favor of the emerging markets of the Global South goes beyond increased voting power or greater representation in governance structures. More importantly, it has brought about a rebalancing of the Fund’s strategic orientation, economic outlook, and operational priorities. The IMF’s recommendations—long grounded in neoliberal principles and shaped by the Washington Consensus—have clearly evolved. Today, the Fund’s policy advice is less ideologically liberal and more attentive to the institutional underpinnings of reform. Commitments made under Articles IV and VIII consultations, as well as in the context of stabilization and crisis-response programs, now extend to issues such as public and corporate governance, anti-corruption measures, labor market development, central bank independence, financial sector efficiency and regulation, and the implementation of international financial reporting standards.

 

One of the most strategic gains for the Global South has been the IMF’s revised approach to managing cross-border capital flows. Just 15 years ago, the imposition of controls on capital inflows or outflows was deemed wholly unacceptable. Today, under the Institutional View on the Liberalization and Management of Capital Flows, the Fund generally does not object if a government imposes temporary restrictions when deemed necessary.

 

Despite all these changes, the struggle for influence within the IMF continues. Fundamental issues related to sustainable development are the subject of fierce debate on all multilateral platforms. These discussions often echo the legacy and mechanisms of past U.S. economic dominance. Still, for all the significance of this evolving balance of power, it remains true that emerging markets have yet to articulate a coherent economic doctrine or development model that offers a clear alternative to liberal orthodoxy. Whether they—particularly BRICS members—will succeed in doing so, remains an open question. In the meantime, their support for the IMF’s internal policies generally aligns with the institution’s core operational logic. As a result, when new initiatives and decisions are developed—such as those under the Global Climate Action Agenda—the Global South tends to avoid direct confrontation with developed economies, even as it seeks to influence them and apply pressure, particularly on contentious issues like the reform of sovereign debt restructuring practices.

Reforming Multilateral Development Banks

For various reasons and under evolving circumstances, multilateral development banks (MDBs) have become central subjects of global economic governance (GEG) reform—institutions whose methods and activities are being targeted for revision by both the Global South and the Global North. In just the past few years, three reports by high-level independent experts have been published, each seeking to consolidate stakeholder positions and create conditions for modernizing at least the financial models underpinning MDB operations. A notable feature of this reform track is the convergence of interests between developed and emerging economies, which has enabled a relatively constructive multilateral dialogue. The shared goal is to ensure that MDBs can provide more financing, more rapidly, and on better terms than they currently do.

 

The plan for modernization spans multiple fronts:

1. Revising existing mandates to better align with the Sustainable Development Goals and the global climate agenda;

2. Devising domestic budgetary measures to increase shareholders’ paid-in capital;

3. Introducing hybrid capital instruments—financial tools that combine characteristics of both equity and debt;

4. Reallocating part of the new Special Drawing Rights (SDR) issuance (equivalent to nearly $700 billion) in favor of developing countries, and using those SDRs to secure MDB borrowing on international debt markets, with the proceeds directed toward concessional financing for Global South projects;

5. Adjusting the asset-to-capital ratio to enable MDBs to adopt more expansive lending policies;

6. Engaging with credit rating agencies to ensure that MDBs’ unique features—such as the inclusion of “callable capital” in their founding charters—are better reflected in their credit ratings; and

7. Expanding and enhancing the quality of technical assistance, especially in the identification and structuring of investment projects.

 

Overall, the reform agenda—implemented through the use of Maximizing Finance for Development tools—aims to foster an environment in which MDBs operate more as a system, minimizing excessive competition and duplication. A key emphasis is placed on collaboration between MDBs and national development finance institutions to unlock private sector capital, notably through blended finance mechanisms.

 

Additionally, beginning in 2024, a new process was launched to help national development banks—and their multilateral counterparts—become full-fledged actors in global economic governance. One example is the initiative led by the French Development Agency, which, in its role as Secretariat of the Finance in Common Coalition, has established a Laboratory for Innovative Financing. Among its tasks is to integrate national development banks into multilateral negotiations on GEG reform.

 

Modernizing Financial Regulation

In terms of significance, this area of GEG reform is arguably as important as changes within the IMF. The most notable developments are those at the multilateral level, where both developing and developed economies participate: the establishment of procedures and special supervision for systemically important global financial institutions, based on the “too big to fail” principle; agreements among stakeholders to strengthen capital adequacy requirements for commercial banks under the Basel II and III frameworks; and efforts to regulate the shadow banking sector—financial institutions that provide banking services but are not subject to supervision in most jurisdictions. The Financial Stability Forum, initially created during the Asian economic and banking crises of the late 1990s, was re-established as the Financial Stability Board (FSB), a legal entity under Swiss law.

 

However, in the realm of financial regulatory reform, countries in the Global South are largely rule consumers, as nearly all relevant initiatives and proposals have been developed and promoted by the Global North. The assumption is that the universal application of regulatory and supervisory norms enhances financial stability at the national, regional, and global levels. Given that the financial dimension of the COVID shock was managed with a certain degree of success, these expectations have, on the whole, been met.

 

Emerging market countries have little, if any, influence on multilateral decisionmaking when it comes to modernizing financial regulation. For instance, when discussing issues at the FSB, their stance is often to resist the introduction of binding rules and procedures. This contrasts sharply with their demands in other areas of GEG and with what they have already achieved, particularly in the IMF. Nonetheless, it should be acknowledged that members of the Global South benefit from the best foreign practices, particularly in modernizing national banking systems and leveraging global financial markets.

 

Climate Finance

Strictly speaking, climate finance is a relatively new phenomenon in global development and governance. The aim is not only to reform ineffective mechanisms but also to create conditions for scaling up financing for climate projects and programs. Notably, all GEG stakeholders are involved in this process, with the key role being played by participants in the UN platform known as the Conference of the Parties (COP). This platform has been integral to the UN Framework Convention on Climate Change for over 20 years and later under the Paris Agreement.

 

However, modernization is also taking place in this area of GEG, primarily through the activities of several climate funds established as follow-ups to COP agreements. These include the Green Climate Fund, the Global Environment Facility, Climate Investment Funds, the Adaptation Fund, and the Loss and Damage Fund. Despite some criticism regarding the conditionality of funding and the speed of decisionmaking and disbursements, the High-Level Panel of Experts prepared a report assessing the performance of these funds, offering proposals for improving their operations. Similar to the approach taken with MDBs, the goal is to ensure these funds operate as a cohesive system, avoiding competition for projects and duplication of efforts.

 

Another important aspect of this issue is the emergence of a new topic in multilateral discussions: the development of compliance carbon markets (regulated by the state) alongside voluntary ones. At COP29, discussions began on creating national voluntary carbon markets, which could eventually lead to a global market. The idea is that developed economies, as the largest consumers of hydrocarbon fuels and CO2 emitters, will create demand for carbon credits from Global South countries, which have significant capacity to absorb carbon dioxide, thus becoming suppliers of carbon units. This aligns the interests of the parties involved in using innovative financing mechanisms to achieve carbon neutrality.

 

Today, insufficient financing for both climate and adaptation (transition) projects is one of the most debated issues in global economic governance. A dedicated section in the outcome document of the Fourth International Conference on Financing for Development will address this matter. The Global South is relying on the Global North to fulfill its promise of disbursing $300 billion annually for climate projects in developing countries. Many GEG stakeholders agree that the most promising solution to the funding gap would be the establishment of a global climate finance system. However, while sovereign states, MDBs, commercial banks, and other financial institutions express their commitment to the goals of the Paris Agreement, they are still far from developing a systematic approach. In this regard, the MFD has not yet become fully operational.

 

Origins of Successes and Challenges of GEG Reforms

These are the primary directions for reforming global economic governance, a process that remains slow and not legally formalized. A clear understanding of these circumstances is crucial from a practical standpoint, as there are still many who doubt whether developed economies have truly accepted the need for GEG reform and are actively participating in it.

The de facto adjustment of the Global North’s position is evident in the emergence and operation of the G20. Initially, the G5 was established at France’s initiative to discuss pressing global economic and financial issues, joined by Italy, Germany, the United Kingdom, and the United States, with Washington unable to prevent its formation. The G5 later evolved into the G7 (with the addition of Canada and Japan), which led global economic governance until the late 1990s.

 

As the twenty-first century began, amid the Asian financial and economic crisis and the rising influence of emerging markets, the G7 initiated the establishment of the G20—first at the level of finance ministers and central bank governors, later expanding to include state leaders. It took nearly 25 years for political elites in developed countries to realize that financial stability and sustainable development could not be achieved without considering the interests of the Global South. The G20 became a key platform for addressing the 2008–2009 global financial crisis and has since evolved into a hub for discussing nearly all global non-political issues.

 

The importance of the G20 in reforming GEG and GFG cannot be overstated. This is clearly reflected, for example, in Paragraph 14 of the Kazan Declaration of the BRICS Association: “We emphasize the key role of the G20 as the main international platform for multilateral financial and economic cooperation.” At the same time, both the reform of GEG and the revision of the G20’s activities are ongoing simultaneously, making the G20 both a subject and an object of reform. A critical aspect of this process has been the establishment of the G20 sherpas—trusted individuals who have a direct influence on decisionmaking, far beyond mere assistants.

 

Another significant innovation is the creation of special working groups. Their functions and compositions vary, but many are permanent. These include the Working Group on the Framework Agreement for Strong, Sustainable, Balanced, and Inclusive Growth, the Working Group on the International Financial Architecture, the Working Group on Sustainable Finance, the Working Group on Infrastructure (all part of the G20’s financial track), and the Working Group on Development (where sherpas are especially active), among others. This format of expert-level multilateral interaction increases the G20’s capacity to influence global development and governance. The operation of these groups is a clear sign of progress in GEG: developed economies have agreed to “allow” Global South states to join discussions on issues that for decades were the exclusive domain of the United States and its allies.

 

The United States carefully monitors the participation of emerging market countries in GEG. For example, the Pentagon commissioned research by American universities on the prospects of a single BRICS currency as a means of de-dollarizing the IMFS. The experts concluded that the emergence of such a currency, even in the distant future, could threaten U.S. national interests.

 

Despite the competition for influence, the Global North and Global South have reached a number of systemic agreements, including on GEG reform. A key success of the modified G20 has been the collective rejection of manipulations with national currencies, which played a significant role in overcoming the global financial crisis. Multilaterally agreed recommendations on maintaining global financial stability are also crucial, including the introduction of early warning exercises, where threats are assessed in special IMF and FSB reports. Without G20 decisions, the successes in GEG reforms outlined in this paper would not have been possible.

 

All things considered, there is strong evidence to suggest that the G20 has become a forum where key decisions on global governance have either already been made, are in the pipeline, or are being informally proposed and negotiated. It serves as a laboratory where new proposals, ideas, and approaches to GEG reform undergo the first test for technical and political viability. In this capacity, the G20 has largely overshadowed the G7. Its central role—particularly the influence of emerging markets within the G20—signals a new world economic order. However, the upcoming 2026 U.S. presidency of the Group will likely test this conclusion.

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