When the global financial system was redesigned in Bretton Woods in the 1940s, it was the US which had the strong hand. Britain had Keynes but his schemes had to be modified to satisfy American desires. This time around, when redesigning the system, the lead is still being taken by the US and Europe but they are bankrupt. The financial strength is with China and the rest of Asia, plus the oil-rich countries of the Middle East. Most of these countries have a low voting quota in IMF, which badly needs their money to recapitalise the broken banks of Europe.

Thus the money is with the rest of the world. But where are the ideas? As of now, I have seen very little serious work on the issues. There is a lot of posturing. Europe wants to regulate the markets much more and the Anglo-Saxons are not so sure. Everyone takes Keynes’s name in vain, but we can hardly repeat his 1940s recipes for the 21st century. If power is going to shift to Asia, where are Asia’s terms for the reforms?

The easiest thing to be done should be a recasting of the governance structure of IMF and World Bank. Its heads should be selected from a much more open process than what happens now, with Europe running IMF and US the World Bank. Quotas have to be reallocated and there is no reason why those who have deficits and need capital injection should have the same large votes. Indeed, one should examine the reason for unequal quotas. A system of one-country-one-vote, as happens in WTO, would be much better.

... contd.