“The Bretton Woods system is not fit”. Faced with the scale of the climate crisis and its financing, economist Laurence Tubiana noted at the press conference organised by the European Climate Foundation on Wednesday 5 April that the financial system is “fragmented”.
The meeting, held ahead of the IMF’s spring meetings, discussed the basis for a ‘new global financing pact’ in the run-up to the Paris Summit. Taking place in June 2023, this international conference will aim to increase financial solidarity with the South in order to achieve the objectives of the 2030 Agenda. It is a milestone in the run-up to COP28.
Reforming the international monetary system. According to Laurence Tubiana, the main challenge facing the EU is the reform of the Bretton Woods institutions, whose agreements have determined the workings of the international monetary system since 1944. The economist denounced the limits of this system, which does not allow for the integration of emerging countries, which are, however, the most affected by the climate issue.
She thus advocates an adjustment of the IMF capital quotas allocated to its member states: “China’s quota is 6%, compared to 16% for the United States. Brazil and India have quotas below 4%, where only France has 4.7%”. At the same time, she notes that “20% of the world’s population is at risk of becoming indebted. So there has to be a new way of dealing with debt”.
In this sense, Ms Tubiana recalled that the EU, as a member and core shareholder of the IMF and the multilateral development banks (MDBs), has the opportunity both to increase its lending and to push for the establishment of an IMF Resilience and Sustainability Fund and thereby release Special Drawing Rights (SDRs) to facilitate the financing of other countries’ needs.
Accepting fragmentation. The economist also recommends “aligning other models, other institutions” on climate objectives. One of the solutions is to take note of the development banks that have been set up by the BRICS: “We have another system of currencies that is taking shape. We have taxonomies in different countries. So we need to accept this fragmentation”.
Moving away from the American-European hegemony. This is why Laurence Tubiana argues that the system cannot continue “under the hegemonic control of the US and Europe”. She believes that Europe must continue to raise its ambitions and work with the United States, as well as with China. “We need this leadership from European governments, as well as from the US and China, in shaping the agenda because we need to offer a new way to work with the Global South”. (Original version in French by Nithya Paquiry)