Washington, US (BBN)-The US Senate has adopted long-awaited reforms to give emerging economies a greater say in how the International Monetary Fund (IMF) is managed.
China’s voting rights will rise to 6 per cent, from 3.8 per cent and IMF resources will double to about $660bn (£440bn), reports BBC.
This is the biggest shake-up since the IMF and the World Bank were set up to manage the post-World War Two economy.
China has set up the Asian Infrastructure Investment Bank as an alternative to the IMF and the WB.
The IMF reforms were agreed by its 188 members in the aftermath of the world financial crisis in 2010.
As China’s voting rights rise, the US will see its share drop from 16.7 per cent to 16.5 per cent.
The US also retains its veto power.
India’s voting rights will rise to 2.6 per cent from the current 2.3 per cent.
The biggest losers are European economies which will see their voting rights diminished.
The US was behind the initiative to bring in the 2010 reforms in a bid to keep China happy.
But Republicans in the US Congress had been concerned at the diminishing US influence.
US Treasury Secretary Jacob Lew said in a statement: “The IMF reforms reinforce the central leadership role of the United States in the global economic system and demonstrate our commitment to maintaining that position.”
IMF chief Christine Lagarde hailed the US adoption as a “a welcome and crucial step forward that will strengthen the IMF in its role of supporting global financial stability”.
And China’s Central Bank said the reform “will improve the representation and voice of emerging markets and developing countries in the IMF and is conducive to protecting the IMF’s credibility, legitimacy and effectiveness”.
Last month, the IMF decided to include China’s currency, the renminbi, as a reserve currency, alongside the US dollar, the euro, the yen and the British pound.
The IMF and the WB were conceived in 1944 at a conference in Bretton Woods, in the US state of New Hampshire.
The IMF aims to preserve economic stability and to tackle – or ideally prevent – financial crises.
Over time, its focus has switched to the developing world.
The WB is the world’s leading development organisation, working for growth and poverty reduction.
What does the IMF do?
The IMF is funded by a charge – known as a “quota” – paid by member nations – based on a country’s wealth.
It determines voting power within the organisation; those making higher contributions have greater voting rights.
The IMF acts as a lender of last resort, disbursing its foreign exchange reserves for short periods to any member in difficulties.
It helped in the 1997 Asian financial crisis, and loans to help South American countries such as Argentina and Brazil stave off debt default crises.
In October 2008, the IMF activated an emergency funding scheme for countries facing economic distress resulting from the global financial crisis.
It is currently contributing to the second international bailout of Greece.