American Leadership in a Multipolar World
LONDON – Giving up
the spotlight is never easy. The United States, like many aging
celebrities, is struggling to share the stage with new faces, especially China.
The upcoming meetings of the International Monetary Fund and the World
Bank – two institutions dominated by the US and its Western allies –
provide an ideal opportunity to change that.
The US must come to
terms with the reality that the world has changed. The longer the US
remains in a state of denial, the more damage it will do to its
interests and its global influence, which remains substantial, if more
constrained than before.
The world no longer
adheres to the static Cold War order, with two blocs locked in open but
guarded confrontation. Nor does it work according to the Pax Americana that dominated in the decade after the Soviet Union’s collapse, when the US briefly emerged as the sole superpower.
Today’s world is
underpinned by a multipolar order, which emerged from the rise of
developing economies – most notably China – as major actors in trade and
finance. The US – not to mention the other G-7 countries – now must
compete and cooperate not only with China, but also with India, Brazil,
and others through expanded forums like the G-20.
To this end, the US
must show leadership and adaptability. It cannot refuse to support
China’s efforts to expand its role in global governance. Nor should it
issue harsh rebukes to its allies when they do not follow suit, as it
did when the United Kingdom announced its intention to join the new
China-led Asian Infrastructure Investment Bank.
The US seems to be stuck in the Bretton Woods system,
the rules-based order – underpinned by the IMF and the World Bank, with
the US dollar at its heart – that emerged after World War II. The
Bretton Woods system institutionalized America’s geopolitical supremacy,
leaving the old imperial power, the UK, to step aside – a step that it
took graciously, if a little desperately, given its grave postwar
economic situation.
Over the years,
however, the Bretton Woods system, with its mix of liberal
multilateralism and market-oriented economic policies, has come to
symbolize the Anglo-American dominance of the global economy that much
of the world now criticizes, especially since the global financial
crisis. In particular, the Washington Consensus
– the set of free-market principles that influences the policies of the
IMF, the World Bank, the US, and the UK – has generated considerable
resentment, especially after the Asian financial crisis of the 1990s.
Against this
backdrop, it is hardly surprising that China has been using its growing
global influence to help engineer a new economic order – one in which
the US dollar does not reign supreme. Zhou Xiaochuan, the governor of
the People’s Bank of China, China’s central bank, has repeatedly called
for a shift toward an international monetary system that allows for the
use of multiple currencies for payments and investment. Such an
approach would reduce the risk and impact of liquidity crises, while
decoupling the international monetary system from the “economic
conditions and sovereign interests of any single country.”
Of course, China
believes that its own currency, the renminbi, should eventually play a
central role in this new monetary system, so that it reflects China’s
role not only as a leading engine of global economic growth, but also as
the world’s largest creditor. Indeed, together with the other
systemically important economies (the US, the UK, Japan, and the
eurozone) China drives trends that, for better or worse, extend far
beyond its borders.
Since 2009, China’s
leadership has been pursuing a set of policies that encourage the use of
the renminbi in regional trade and reduce its dependence on the dollar
in international payments. But expanding the renminbi’s role in the
international monetary system is just the first step toward
institutionalizing a multipolar world order. China has also spearheaded
the establishment of new multilateral institutions, with AIIB following
on the heels of the New Development Bank, created with other major emerging economies (Brazil, Russia, India, and South Africa).
By taking these
steps, China’s leaders have called attention to the inadequacy of the
existing international monetary system, and its institutional framework,
in today’s complex, multipolar world economy. In particular, China’s
agenda highlights questions about America’s capacity to provide the
needed liquidity to support international trade and finance.
To be sure, the US is
right to wonder whether the new order that China hopes to build will be
as open and rules-based as the American-led order – the one that gave
China the market access it needed to achieve its spectacular economic
rise. But the answer to that question can be found only by engaging China on the issue of reform of global governance – not by denying that change is needed at all.
As the US stubbornly
pursues a policy of containment toward China – exemplified in its fight
against the AIIB’s establishment, its relentless accusations of currency
manipulation, and its refusal to ratify IMF reforms that would increase
China’s influence – it risks losing its ability to shape what comes
next. The result could be a world of fragmented blocs – an outcome that
would undermine not only global prosperity, but also cooperation on
shared challenges.
The Spring Meetings
of the IMF and the World Bank offer an important opportunity to signal a
new approach toward China. And there could be no more credible signal
than US support for the renminbi’s addition to the basket of currencies
that the IMF uses to value its international reserve asset, the Special Drawing Right. America will be in the spotlight once again. But how will it perform?
Paola Subacchi is Research Director of International Economics at
Chatham House and Professor of Economics at the University of Bologna.
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