Beijing is making a fat down payment on taking a larger role on the international stage. The $43 billion China has pledged towards the replenishment of the International Monetary Fund’s coffers is conditional on implementing outline reforms of the Fund’s voting structure agreed in 2010. More room for China, and the four other Brics, who have spearheaded this latest replenishment as the Fund gathers the wherewithal to bail-out the eurozone if necessary, is being made by the U.S. and Canada not participating.
Voting power at the IMF is largely a function of capital contributions. The required size of a country’s contribution, its quota, is determined by a formula that comes down to economic clout. The 2010 reforms propose a 6% shift of quota from developed to emerging economies. The effect will be to give China the third most votes at the Fund. All the Brics will move into the top 10. The Fund aims to ratify the changes, which require the approval of its member nations, at is 2014 annual meeting. It is not for nothing that the Beijing and its fellow Brics are holding back their latest money until the Fund’s existing bail-out supplies are exhausted, in case a reminder of who holds the big stick is required.
Beijing and the other Brics have also agreed to study further currency swaps and pooling their foreign exchange reserves. This is being billed as a means to create pools of liquidity available to help stabilize the international financial system should it be required, but it will also advance Beijing’s agenda of gradually internationalizing the yuan. Finance ministers and central bank governors from the Brics will report back on this at next year’s Brics summit in South Africa. As always, follow the money.