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Bashing the United States remains a popular sport even after the departure of President George W. Bush from the White House. Criticism of Washington has intensified in the past year as the world grapples with an economic crisis that many believe was made in the U.S.
This discontent drives calls for reorganization of the international monetary system, a system that confers special advantages on the U.S. Yet, unsatisfying as the system may be for many, change will be slow. Even as the global economy reorients and diversifies, and economic power moves toward Asia, the U.S. will retain its place at the center of that system.
That dissatisfaction provided the backdrop for a meeting in the Russian city of Yekaterinburg on June 16. Leaders of Brazil, Russia, India and China held the first summit of the so-called BRIC nations. The term was coined in 2001 by a U.S. investment banker who touted the considerable potential power and influence of those four nations. They account for slightly more than 40 percent of the world's population, make up about 15 percent of the global economy, and hold 40 percent of global currency reserves. In 2001, the four were expected to overtake the combined economies of the industrialized world by 2040. Recent woes have accelerated that timetable: The new date is 2027.
Despite impressive prospects, the four remain secondary players in international decision-making. Only Russia and China have permanent seats on the United Nations Security Council. Moscow is the only member with a reserved place among the Group of Eight leading industrialized nations. The four agree not only that they deserve more of a say in how the world is run but also that the very structure of the current system gives the U.S. too much power.
Thus their declaration, released after the meeting, called for "a stable, predictable and more diversified international monetary system." The four heads of state seek changes in the world's financial and economic architecture that will yield "democratic and transparent decision-making and an implementation process at the international financial organizations." While urging all nations to help build stability into the multilateral trading system and to curb protectionism, they also want "reform of international financial institutions to reflect changes in the world economy."
In practical terms, that means new voting weights in the International Monetary Fund (IMF) and the World Bank to give previously disenfranchised governments a louder voice. Equally important is U.N. reform — a call that Japan would support.
Conspicuous by its absence in the BRIC communique was explicit criticism of the dollar as the world's reserve currency. That status is a pillar of U.S. economic power and influence and forces other nations to bear the costs of Washington's economic mismanagement. There have been growing calls to use other currencies to complement or even replace the dollar in this role. Earlier this year, the governor of the People's Bank of China published an essay that sent shock waves by suggesting that special drawing rights, a currency used by the IMF, might do the job. During the BRIC meeting, Russian President Dmitry Medvedev, host of the summit, called for a new reserve currency. Yet the final declaration was silent on the subject.
The silence is a reminder that the BRIC nations are four big countries, not one powerful bloc. They agree in principle on a more democratic international system and a smaller role for the U.S., but specific steps toward those goals remain beyond their reach. For example, despite its rhetoric, China is not thrilled with the idea of U.N. Security Council reform, if that means seating India and Japan, two of its rivals.
Moreover, calls to replace the dollar as the world's reserve currency are a vote of no-confidence in the greenback, which would diminish the value of dollar holdings. China had, as of April, $763.5 billion in U.S. Treasury bills, making it the single largest holder of U.S. government debt (Japan is No. 2); Russia has $137 billion. A fall in the dollar devalues those holdings.
Nor do those governments want to hold large amounts of other currencies. In each case, the U.S. is a major trade and investment partner; only Brazil trades more with China than it does with the U.S. (and China has far more trade with the U.S. than with Brazil). There may be a willingness among the BRIC treasuries to diversify their foreign exchange holdings, but they still need dollars to do business. As a group, they seek to diminish U.S. status and influence; individually they want to build stronger relations with Washington to lift their own international standing.
The world has been transformed since 1945, yet international institutions have been slow to adapt. Reform is long overdue — not just because democratic principles demand that these countries have a bigger voice but also because elevating their seat at the table gives them a stake in the outcomes. With power comes responsibility. It makes no sense to virtually disenfranchise nations that can and should be contributing to efforts to build a more stable, secure and prosperous world.