IMF look at China

By 2027, the International Monetary Fund, may move its headquarters to Beijing, China.

Christine Lagarde, the managing director of IMF has said that such a move will be dictated by China’s economic growth.

Background

The International Monetary Fund (IMF) is currently headquartered in Washington, USA. Formed in 1944, it was conceived to promote international monetary cooperation and facilitate the growth of global economy. It currently has 189 member countries and has been called the “firefighter” for economies. It exists to prevent economic collapses such as the Great Depression.

Along with the World Bank, the IMF is the largest public lender of funds in the world. Apart from lending funds, it tracks economic growth, publishes forecasts and even plays an advisory role to member-nations. The fee to join the IMF depends on a country’s economic standing in the world. The US, which is the biggest economy in the world, is the institution’s biggest contributor. It also retains 17% of the voting power.

China, which is the second largest economy in the world, is projected to overtake the US GDP in the next 10 years.

Analysis

According to the latest forecasts from the IMF, the US economy will be growing at a slower pace than anticipated in 2017. China, on the other hand, is set to enjoy a higher than expected growth rate.

IMF is dictated by a set of bylaws. The institution’s head office has to be located in the largest member economy. Up until now, that member has been the US. As emerging markets continue growing, IMF will also have to overhaul its voting structure accordingly. The institution will have to increase its representation in the region.

Lagarde was speaking at a Center for Global Development Changes event when she remarked that Beijing could be the next headquarters. She was posed a query about what IMF would look like in 2027. She said, “If we have this conversation in 10 years' time...we might not be sitting in Washington, DC We'll do it in our Beijing head office.” The response was said in jest and elicited a laugh from the audience members but if the forecasts hold true, then it could become a reality.

Assessment

Our assessment is that China is slowly yet surely replacing the US as the most powerful financial voice in the world. With US increasingly seeking protectionism, China could take up the mantle of the leader of free trade. Chinese President Xi Jinping has already positioned himself as a champion for both climate change and free trade in the recent months and this trend will continue in the future. The US’ loss will literally be China’s gain.