After about 64 years of unchecked domination in the world's financial and monetary systems, the Bretton Woods institutions are experiencing a seismic quake. For years, the U.S. has dominated multilateral organizations like the International Monetary Fund and the World Bank. Now, Eastern economies say that U.S. recklessness is responsible for a global recession and are talking about the creation of a new Bretton Woods. That won't be easy, though. The roots of the current financial system are so widespread that no less than a complete reform can achieve change. The tough question is: Who is capable of leading if the U.S. isn't? Not surprisingly, countries with emerging economies have stepped forward to take this opportunity. And for sure, they are going to change the way that world financial matters have been governed in the post-WWII era. China, with its incredibly massive foreign exchange reserve, is on the front line. Besides its roughly $2 trillion reserve (mainly generated from export-led growth), China reads the present financial crisis with optimism. In Chinese, weiji (a Chinese word for crisis), means both opportunity and danger. As a rising power in the globalizing world, it is making its best effort to export this philosophy to Europe and the rest of Asia. Recently, the leaders of European and Asian countries gathered in Beijing to discuss the financial crisis. Chinese leaders were excited to see the "changing world order" and the perceived need for Chinese help in setting the world economy back on track. After having seen the failure of U.S.-led capitalism, China now wants to put an end to American economic hegemony, which began with the establishment of the Bretton Woods institutions in 1944. Accordingly, the U.S. must compromise because the existing international financial and monetary institutions are becoming increasingly obsolete. Most of the leaders in Beijing emphasized the need for "radical reform." Even British Prime Minister Gordon Brown, a key U.S. ally, has urged "very large and very radical changes" in the global economic order. Similarly, French President Nicolas Sarkozy expressed his discontent with the U.S.-led financial world order, saying that "the 21st-century world cannot be governed with the institutions of the 20th century." The idea is to free the world's financial system from the overwhelming influence of a handful of strong economies and introduce a more inclusive and transparent system. The Bretton Woods institutions are criticized for being an extension of the U.S. treasury, which is partially true. The world is suffering under the current financial crisis because of the United States and its free-market mania. There is still no immediate alternative to using the U.S. dollar as a universal bank reserve and the IMF as the international regulating institution. Under such circumstances, can the world still afford to rely on the traditional financial policies? I don't think so. It should also be ensured, however, that countries lacking transparency and a free-flow of information do not enjoy a big hand in leading future financial and monetary mechanisms. European and Asian countries should collaborate with the rest of the world, including the U.S., China and Russia, to create an inclusive and more transparent international financial order that supports state-led growth. What the world needs is better global governance. We are so closely interconnected that no one is immune to any disaster no matter where it happens.
Sigdel is an Asia Pacific Leadership Program fellow at the East-West Center.
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