My Conclusion

(full conclusion at the foot)

While America worries about Taiwan and computer chips, China is waging economic efforts to replace the legacy institutions set up by the West after WW2 (1940’s).

Analysis

Larry Summers speaks out while attending this weeks IMF annual meeting. He goes straight to the mandate and actions of the IMF and World Bank. They were set up to operate the Bretton Woods agreements of 1944 designed to establish for the first time a world wide monetary order.

Summers point is to suggest the mandate of IMF, World Bank and UN is increasingly losing relevance as originally designed.

Summers referred to the largest malaise in the world economic system and which is becoming known as FRAGMENTATION. Here Raghuram Rajan made similar comments.

One key source of fragmentation risk is the ever-escalating tensions between the US and China, the world’s biggest and second-largest economies. 

“That’s the key relationship in the world” and “that is fracturing,” Raghuram Rajan, a former IMF chief economist, said on Bloomberg Television Thursday on the sidelines of the meetings. “That is important for the rest of the world — because if you have to choose sides, countries will be in a very, very difficult position.”

Bretton Woods

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars … and thus established the International Monetary Fund (IMF) to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.1 Preparing to rebuild the international economic system while World War II was still being fought, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, … Setting up a system of rules, institutions, and procedures to regulate the international monetary system, these accords established the IMF and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. …. Soviet representatives attended the conference but later declined to ratify the final agreements, charging that the institutions they had created were “branches of Wall Street”

Supply Chains

Another key theme at the IMF meeting is Supply Chains which have suffered since COVID lockdowns.

The IMF took the expected western view that supply chains need to be repaired. However the Middle Power group, let by China point to a more pragmatic vision focussed on address their own Supply Chains and this view is echoed by Lula. More from Bloomberg.

China instead is focused on strengthening its own supply chains and financial ties with the developing world — a push on display this week as it plays host to Brazil’s president, Luiz Inácio Lula da Silva.

Amid the impasse in debt talks in Washington, Shanghai witnessed the swearing in of one of Lula’s predecessors, Dilma Rousseff, as head of the New Development Bank. The NDB is one of a number of multinational institutions and forums China has built as it places less emphasis on legacy organizations (e.g. IMF, World Bank, UN) set up in an era of US domination.

China Solution – a Three Point Plan

Wang Wenbin, a spokesman for the Foreign Ministry, outlined proposals delivered at the Global Sovereign Debt Roundtable, providing fresh insight into China’s demands to find a solution to the debt crisis

China three point plan for debt relief

• “First, multilateral creditors need to come up with solutions on their participation in debt treatment as soon as possible
• “Second, the International Monetary Fund needs to takes action in information sharing on debt sustainability assessments as soon as possible.
• “Third, parties concerned need to agree on the specific way for creditors to participate on comparable terms as soon as possible.”
  

Conclusion

While America frets about Taiwan and computer chips, China is getting the job done waging economic efforts to replace the legacy institutions set up by the West after WW2 (1940’s).

The China solution happens to address a debt crisis associated with their Betlt and Road initiative.

The Chinese efforts are shrewd and have a strong thread of pragmatism which is easily understood by Middle Powers. China has solutions such as NDB (New Development Bank) and associated forums.

The resulting fragmentation of the worlds economic system following the increased isolation of US and the realisation by China and Middle Powers that they can fast track the support needed for their countries will change the way Western Banks and governments operate.

This explains Macrons comments and point to another risk to EU as a cohesive bloc.

More analysis and fact gathering needed.

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Footnote More on Summers quoted words.

Summers Warns US Is Getting ‘Lonely’ as Other Powers Band Together

Deepening links between the Middle East and Russia and China — which recently brokered a rapprochement between Saudi Arabia and Iran — are “a symbol of something that I think is a huge challenge for the United States,” Summers said.

“We are on the right side of history — with our commitment to democracy, with our resistance to aggression in Russia,” he said. “But it’s looking a bit lonely on the right side of history, as those who seem much less on the right side of history are increasingly banding together in a whole range of structures.”

Washington will need to consider how to address this new challenge, he added. The structures of the IMF and World Bank will also be a key longer-term issue, he said. “If the Bretton Woods system is not delivering strongly around the world, there are going to be serious challenges and proposed alternatives.”