Andreas Dombret and Marc Uzan discuss whether the current global regulatory framework can endure. Their guest piece was initially published in Financial News.
The gatherings of the World Bank and International Monetary Fund in Washington D.C. typically provide global finance ministers and prominent central bankers an opportunity to collaborate on pressing economic matters. However, this month’s assembly is set to differ significantly.
Amid discussions regarding the global economic landscape and financial system, there exists an underlying anxiety about the intentions of the Trump administration towards these vital Bretton Woods entities. As the United States shifts away from multilateralism, will the World Bank and IMF become mere tools for the US to fulfill its economic ambitions?
Established during the 1944 Bretton Woods conference, primarily through the efforts of Harry Dexter White, the US Treasury’s chief international economist, and John Maynard Keynes, the acclaimed British economist, the World Bank and IMF were envisioned as foundational elements of the post-World War II economic order.
While the US holds a dominant position as the principal shareholder, these institutions were intended to promote a multilateral approach based on common goals and shared values. Alongside the Marshall Plan, they marked the onset of Pax Americana.
As President Trump actively dismantles the multilateral framework of global governance that has been in place since World War II, the future role—perhaps even existence—of these institutions is at risk. This uncertainty also extends to the G20, the principal platform for international collaboration since the financial crisis, and threatens regulatory cooperation within the Basel Committee, which oversees the global banking system.
The Heritage Foundation’s Project 2025, outlining a Trump administration agenda, characterized the IMF and World Bank as instruments of global elites, advocating economic principles that conflict with American ideals of free markets and limited government. The proposal included halting US funding and withdrawing from both institutions.
Inside these organizations, there is a palpable sense of anxiety and inaction, with officials hesitant to voice concerns publicly. They recognize that the administration shows little regard for their commitment to combating climate change and lacks support for the World Bank’s development objectives, especially as the US curtails its own bilateral aid initiatives. Additionally, the US prefers not to be a major contributor or participant in organizations it does not control, like the IMF, where the managing director has traditionally been a European.
Similarly, the current administration exhibits a detached stance towards the Basel Committee on Banking Supervision, a critical forum for regulatory collaboration that has established global banking standards for over half a century, which the US does not oversee. Cooperation within the Basel Committee is already showing signs of deterioration, as the US, Japan, the UK, and the EU pursue divergent approaches regarding Basel III capital reforms.
Regarding the G20, which the US will chair next year, the approach is expected to become increasingly transactional. Reports suggest that the Trump administration will aim to diminish the role of “unelected” central bankers while revitalizing the G7, a forum where it holds definitive sway, as the primary arena for international negotiations.
It is indisputable that reforms are necessary for global financial institutions. The current international financial structure is often perceived as being dominated by Western interests, especially by countries in the global south.
Furthermore, certain US concerns are valid. For instance, how has China, now the world’s second-largest economy, benefited so extensively from World Bank loans? One analysis indicates that US firms win a mere 2% of contracts financed by the World Bank, while Chinese companies capture 29%.
Playing the long game
Nevertheless, the US should carefully reconsider any move to abandon the existing global financial framework. The post-WWII system has overseen an unparalleled era of prosperity for the US. Its influence within multilateral entities has facilitated the promotion of free markets, sound fiscal policies, and exchange rate liberalization—benefits that have consistently supported US interests.
The established system has been crucial in solidifying the dollar’s position at the heart of the global financial architecture as the world’s reserve currency, granting the US the extraordinary privilege of borrowing in its own currency without restrictions—an economic advantage not shared by any other nation.
This system has also armed the US with substantial leverage in economic and foreign policy arenas. The dollar’s involvement in over half of global trade, alongside the fact that 90% of foreign exchange transactions include the dollar, means that no international bank can risk facing US sanctions.
Moreover, multilateral financial institutions, including the Basel Committee, have been essential in managing financial crises, collaborating effectively in times of urgency. Achieving financial stability is a global public good that necessitates international cooperation during times of crisis, as bilateral arrangements fall short given the interconnected nature of global financial markets.
The US benefits from this collaboration as much as any other nation. The thought of the global financial crisis evolving without the coordinated efforts of G20 finance ministers, the Federal Reserve, and other central banks within the Basel Committee—as well as the multilateral organizations—provokes fear over its potential consequences.
Perhaps the US will opt not to withdraw from the World Bank and IMF, instead aiming to shape the global financial architecture from within to meet its objectives. However, either path presents dangerous implications on a precarious precipice.
While Russia may welcome such a shift, the principal beneficiary would ultimately be China. With its belt and road initiative, it has gained significant economic influence and has become adept at navigating international institutions. China’s impact will only grow if the US steps back.
Is this the outcome the US truly desires? If so, it will fall to European nations to step forward, just as they are now compelled to in defense matters.
Prof. Dr. Andreas Dombret is a former Board Member of the Deutsche Bundesbank and a former Supervisory Board Member of the ECB. Additionally, he serves on the Board of the Atlantik-Brücke.
Marc Uzan is the Founder and Executive Director of “Reinventing Bretton Woods”.
