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2024年9月18日

80 Years After Bretton Woods, What Do We Need?

Thomas Krantz
Advisor to the Managing Director
Improbably enough, with eyes trying to focus on a future that was so very hard to discern in the midst of the most devastating war the world had ever experienced, in 1944 economic and financial policymakers convened at an isolated resort hotel in New England, Bretton Woods. A key objective was to plan the multilateral financial institutions that would help rebuild the destroyed global economy: the World Bank and the International Monetary Fund.

Only one multilateral institution existed at the time, the Bank for International Settlements in Basel.  That work was focused on coordination of central banks, including – controversially – during World War II.  The idea of creating multilateral institutions to cover a broader spectrum of finance than central bank conversations was itself innovative – the world had little experience of how to create such things.

WAIFC members likely have in the back of their minds the understanding that these two institutions have formed the backbone of the world’s financial system since the end of World War II.   A sore or weak back is a health concern that for humans usually arises progressively; and we have this institutional equivalent with IMF and World Bank no longer adequately supporting the financial services industry, and the global economy that those services finance.  Remediation is necessary and is soon to be at hand.

Eight decades have come and gone since the Bretton Woods conference.  The question of this opinion is what the thinking may be to keep these central actors ever more pertinent.

 

 

What Questions Need to be Asked?

Two challenges currently threaten the 80-year record of rising global living standards and poverty reduction.  First, it is widely recognized that crises in the global commons—used here in a broad sense to include many forms of cross-border challenges that fall outside any one national jurisdiction, such as climate, pandemics, and cyber risks—are having an increasingly negative global impact. Without collective corrective measures, these challenges are likely to become more urgent.  Second, despite this recognition, progress in addressing them has been too little and too slow. Understanding the reasons for this blockage, and finding a path toward a resolution, is the motivation behind this Bretton Woods Committee Multilateral Reform Working Group (MRWG) Report.[1]  Neither the public sector nor the private sector alone can solve these challenges.  Instead, it is imperative to identify the specific shortcomings in the entire system—public and private—that are impeding progress. According to the analysis presented, a set of specific gaps in both the public and the private sectors—encompassing governance, implementation, and accountability—need to be tackled to break this impasse. Finally, focusing the gap analysis on the system that surrounds climate finance, rather than more broadly, allows the analysis to be more specific and concrete about the changes needed to make sustainability progress. In due course, the Committee should also investigate other areas, such as public health, digital public infrastructure, and trade, using bespoke gap analysis for each of these topics. 

For WAIFC, the Bretton Woods reform work focus ties in perfectly, because of this Alliance’s ongoing work with supporting green finance.

The report takes the starting point that the World Bank and the International Monetary Fund, with their global membership, shareholding model, and weighted voting structures, are best placed to fill the global leadership role. But are they fit for purpose with respect to governance, resources, and expertise to effectively tackle these global commons challenges? And how can incentives facing the private sector be managed?

 

 

Looking More Deeply

Of all the global commons challenges, climate change is among the most pressing.  At the same time, technical advances over the past few decades have improved the feasibility of making more rapid progress.  In particular, innovation has vastly improved the economics of reducing carbon emissions:  the problem no longer is whether it is technically feasible to stabilize and then bring down global carbon emissions, but instead how to do this quickly, equitably, and at scale. This requires coordinating actions that will help set priorities for mitigation and adaptation and mobilize the requisite financial resources to get this done.  Timeliness is critical; delays will lead to a bigger rise in global temperatures, more volatile weather, and worsening social, environmental, and economic consequences.

The Working Group’s analysis suggests that a gap-based framework can be usefully applied to challenges of the global commons. With respect to climate change specifically, three substantive gaps exist in both the public and the private sectors:  governance, implementation, and accountability.  Both sets of gaps must be addressed, as filling the public sector gaps will create an enabling environment for the private sector to complete the job on its end.

For the public sector, the gaps in the architecture are as follows:

  • Governance: despite the existence of the United Nations Framework Convention on Climate Change (UNFCC), no institutions have the overall responsibility to coordinate the global climate change policy and systemwide financial effort. This includes assessing and coordinating the necessary financing, as well as fiscal policies. Without this, the effort necessarily must be disjointed and inefficient, slowing progress.
  • Implementation: there are no public institutions effectively leading and coordinating implementation in a transparent manner using international best practices. In addition, there is a lack of specific financing mechanisms focused on climate—and climate alone—that have appropriate safeguards and possess an effective surveillance framework.
  • Accountability: despite the increasing involvement of financial authorities, corporations, and the third sector in the UN Conference of the Parties (COP) annual meetings, there is no permanent mechanism to ensure a periodic systemwide review of the progress of financing and implementation plans. The absence of such a mechanism precludes effective monitoring progress and enacting midcourse corrections.[2]

 

Similarly, for the private sector, these are the gaps in the architecture:

  • Governance: mechanisms to establish transparent, effective decarbonization stocktaking, goals, and strategies are inadequate. Accurate data on the carbon footprint of the business sector and state-owned enterprises (SOEs) is lacking, impairing the effectiveness of the price discovery mechanism.
  • Implementation: there is insufficient information on the availability of financial instruments to facilitate climate change investment at scale. Furthermore, little clarity exists regarding relative prioritization of activities for mitigation, for example, expanding renewable energy, improving energy efficiency, and increasing carbon capture.  The public does not know enough about the necessary adaptation of economies to climate change through infrastructure, new production processes, and insurance, or to the foreseeable impacts on value chains in different geographies.
  • Accountability: there is no mechanism to monitor and verify corporate commitments, trajectories, and accompanying implementation strategies. There is no clear enforcement mechanism to reduce the risk of greenwashing.

With the problem outlined, how can these global multilateral institutions change?

 

 

Strengthening the Roles of the World Bank and International Monetary Fund

Policymakers see these two key institutions as well-suited to fill these gaps.  The opinion writer also observes that nothing else is out there to do so; so, let us make good use of what we have.

The institutions themselves have already made determined progress in integrating climate into their missions.  The World Bank’s October 2023 mission statement puts this objective front and center, and it has substantial loans out to climate projects.[3]  For its operations, the IMF has set up its nascent

Resilience and Sustainability Trust and its comprehensive climate strategy.[4]  There are also various levels of cooperation with other institutions in the system which are working in their areas of comparative advantage—like the OECD, FSB, IEA, UNFCCC, UN-DESA, FATF, and others.

These two institutional mandates need to be augmented, not handicapped; and they need strengthened governance structures, operating models, and financial firepower.  Recognizing that the bulk of financing must come from the private sector, these institutions are also positioned to help governments bring the private sector together around common standards, practices, and instruments to ensure their alignment with global goals. 

This is precisely where WAIFC members have their role to play:  their governments will be involved in this coordination deep in the structure of our global financial system.  The actors in each of these jurisdictions will be called upon to play their part.

 

 

 

 

[1] -https://www.brettonwoods.org/page/multilateral-reform-working-group

[2] -Each Party to the Paris Agreement is required to establish a nationally determined contribution (NDC) and update it every five years. There is not, however, much formal coordination in the setting of NDCs, nor is there accountability regarding the progress in meeting them. See “Nationally Determined Contributions,” UNFCC, 2024, https://unfccc.int/process-and-meetings/the-paris-agreement/nationally-determined-contributions-ndcs

[3] -Evolving the World Bank Group’s Mission, Operations, and Resources: A Roadmap, World Bank Group, December 2022, https://documents1.worldbank.org/curated/ en/099845101112322078/pdf/SECBOS0f51975e0e809b7605d7b690ebd20.pdf  worldbank.org/en/news/speech/2023/10/13/remarks-by-world-bank-group-president-ajay-banga-at-the-2023-annual-meetings-plenary

[4] -“Resilience and Sustainability Facility—Operational Guidance Note,” International Monetary Fund, November 28, 2023, https://www.imf.org/en/Publications/ Policy-Papers/Issues/2023/11/28/Resilience-and-Sustainability-Facility-Operational-Guidance-Note-541867. See also this report’s Annexes 1 and 2, respectively, for a summary of IMF and World Bank actions. 

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