Dissolve the World Bank and Diffuse Dollar Hegemony

K. S. chalam

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The World Bank, a Bretton Woods Institution created after the War in 1944 outlived its purpose. It was created with a hidden agenda to expand capitalist or American supremacy given the precarious conditions at that time has aided the resolve to reach its goal. Economic globalization and its accompanying actions like privatization, appropriation etc. is complete. Globalization and the ideology of TINA churned by the self- seeking experts have fulfilled the dreams of some of its founding fathers. Though some may argue that capitalist expansion might be a hidden agenda but development was its façade could be true on paper. In fact the bloody history of WB underway from the beginning when France was denied loan in 1947 citing that the government had leftists on its cabinet has continued its crusade. The most heinous incident in its history is still remembered was the coupe d’état of Allende who was democratically elected and denied loan but WB helped Pinochet to come to power after assassinating Allende in 1973.  Its role in the Washington Consensus and the consequences are well-known.  It has a long list of criminal activities that are against humanity and principles of justice and democratic rights. Interestingly some of those who have written and supported the agenda of WB have been on their payroll are pampered by governments as policy makers and experts are seen around us today. They are the ones who have outrageously published and were awarded prizes for propagating the values of inequality and the merits that brought development in the World and therefore commit no crimes.  I am citing below the findings of David O. FriedrichsJessica Friedrichs on  “The World Bank and Crimes of Globalization: A Case Study” in Social Justice Vol 29, No 12 2002 to illustrate some of the crimes of WB.

(1) International financial institutions such as the World Bank are key players in an increasingly globalized capitalist system. The claim that capitalism itself is a criminal enterprise is, of course, an enduring thesis of Marxist thought (e.g., Buchanan, 1983).

(2) Moreover, some contemporary critics of globalization--as a transnational expansion of capitalist free markets--seem to suggest that globalization per se is a criminal enterprise that ought to be challenged on every level. We do not propose to pursue such sweeping claims here. Rather, we address the narrower claim that at least some of the policies and practices of the World Bank can be validly characterized as criminal. To support our case, we provide a case history of a World Bank-financed dam in Thailand. A Perspective on Globalization The policies and practices of international financial institutions such as the World Bank, the World Trade Organization, and the International Monetary Fund can only be understood in the context of the notion of "globalization." The invocation of that term has become ubiquitous and the literature on globalization has expanded exponentially in the recent era, although its meaning is far from settled (Chase-Dunn et al., 2000; Dunne, 1999: 20; Hay and Marsh, 2000).

(3) The term "globalization" has been in wide use since the 1960s (Busch, 2000: 22). In one sense, globalization is hardly a new phenomenon, if one means by it the emergence of international trade and a transnational economic order.

(4) Yet globalization has become a buzzword of the transition into the era of the new century due to the widely perceived intensification of certain developments (Mazlish, 1999: 5).

(5) It is not simply an economic phenomenon, although it is most readily thought of in such terms.

(6) Globalization also has important political and cultural dimensions (Chase-Dunn et al., 2000; Mazlish, 1999: 7).

(7) The phenomenal growth in the importance and influence of transnational corporations, nongovernmental organizations, intergovernmental organizations, international financial institutions, and special interest groups is a conspicuous dimension of contemporary globalization (Mazlish, 1999; Shapiro and Brilmayer, 1999; Valaskakis, 1999).

(8) Ordinary people lose control over their economic destiny (Greider, 1997). World markets increasingly overshadow national markets, barriers to trade are reduced, and instant tele- and cyber-transactions are becoming the norm (Blackett, 1998; Chase-Dunn et al., 2000; Jackson, 2000; Scheuerman, 1999). In the broadest possible terms, globalization today refers to the dramatic compression of time and space across the globe. We accept here the view that globalization as a phenomenon is endlessly complex, is characterized by various contradictory tendencies and ambiguities, and is best seen as a dynamic process as opposed to a static state of affairs (Mc Corquodale with Fairbrother, 1999: 733).

(9) The contemporary discourse on globalization is quite contentious, characterized by claims about the effects of globalization that are often directly at odds with each other.

World Bank: Never-ending  coup d’état –The Hidden Agenda of Washington ‘ was received by critiques and experts with admiration. Toussaint and his association with Committee for Abolition of Illegitimate Debt is prolific in his works , wrote how USA has been influencing decisions at Washington. He has noted that according to Catherine Gwin, “The United States is also the dominant member of the Bank’s board - but only in part it is lead shareholder. Formally, most Bank decisions, including those affecting lending levels and loan allocations, require a simple majority vote of the board…. but the decisions are, however, often worked out between the United States and Bank management before they ever get to the board, or among members of the board before they get to a vote. And most board decisions are taken by consensus. It is the weight of its voice; therefore, more than the exercise of its vote that gives the United States effective power on the board.”  Toussaint cites how Keynes was averse to locate the headquarters at Washington realizing the nature of the USA. It is a well-known fact that the Presidents of World Bank invariably come from USA due to its voting strength and manipulations (One can see the details from the publications of Toussaint). In fact WB and its select few management committee actions, some commentators note is like the crime thriller of a Hindi movie is however paraded as men of letters and few as development economists. Though it may be implausible to categorize all of them like that yet, there are very few instances when they objected to the policies of WB. There are exceptions like Stiglitz who withdrew from the Bank and wrote on Globalization and its discontents and other critical essays.
The World Bank as a think tank and capitalist institution gets its thinking and ideas from scholars and experts some of them are paid intellectuals to argue for the capitalist expansion and the merits of such policies of huge funding programmes resulting in devastation in different parts of the World. Interestingly it also provides funds for some NGOs who are on their roles to work on environmental, labor, poverty etc issues as civil society wings perhaps to get inputs and feedback on their projects.  There are hundreds of studies on the World Bank by now that give us a fair picture of how it has accomplished its agenda. One may also look in to its links with fundamentalist organizations to carry its agenda and spit venom against countries and individuals who are against the hegemony of USA. The Bank in association occasionally with IMF have developed strategies as to how the dominant ideology of privatization and globalization lead to development and helped authoritarian regimes like Pinochet  notes Eric Toussaint that , “the WB exercises a real policy of influence to support its network of loans. From the 1950s onward, one of the primary goals of WB policy was “institution building”. This most often meant setting up para-governmental agencies based in the WB’s client countries. Such agencies were expressly founded as relatively financially independent entities with respect to their own governments and outside the control of local political institutions, including national parliaments. They became natural relays for the WB and owed it a great deal, including their very existence and in some cases, their funding. “ The role of Robert Mc Namara as President in promoting authoritarian regimes in Brazil, Nicaragua and later WB policy support to Mobutu in Congo, Philippines, Indonesia, South Korea, and several other countries through its conditions linked debt. In fact WB alone is responsible for bringing almost all the countries under its regime through SAP or Structural Adjustment Policy packages granted along with IMF to countries that abolish or rescind their traditional public sector institutions and most likely promote individuals in the name of privatization.   As Giovanni Arrighi, noted that WB-IMF “created a propitious environment for the counterrevolution in development thought and practice that the neoliberal Washington Consensus began advocating at about the same time. Taking advantage of the financial straits of many low and middle-income countries, the agencies of the consensus foisted on them measures of "structural adjustment" that did nothing to improve their position in the global hierarchy of wealth but greatly facilitated the redirection of capital flows toward sustaining the revival of US wealth and power.”  They could do it with the help of propaganda like academic debates and publishing to promote their ideas relating to development, corruption, good Governance etc . It is significant that they talk about principles such as transparency, accountability; fairness and responsibility as are universal in their application but hardly seen in the administration encouraged by them. Interestingly WB helps agencies and individuals to publish critical studies on development may be as a tactic of input mechanism to improve their systems of delivery.  The civil society activity is supported by WB and there are many prominent faces that are displayed on its website to show its outreach and influence. (One can see one of the prominent faces from India is Ms Medha Patkar is on the web).The whole third world countries including India have revamped their bureaucratic set up with WB principles of administration by sponsoring civil servants to visit Washington or Harvard to get the ideology imbibed so that they get easy access to information and policy making with their prescriptions.

The World Bank was established one year prior to the UNO and became a specialized agency under Art 55 being part of Economic and Social Commission. It is an independent organization with its own mandate, structure, philosophy and management. The UNO notes as follows, “The World Bank focuses on poverty reduction and the improvement of living standards worldwide by providing low-interest loans, interest-free credit, and grants to developing countries for education, health, infrastructure, and communications, among other things. The World Bank works in over 100 countries, along with the following agencies.

*International Centre for Settlement of Investment Disputes (ICSID) and Multilateral Investment Guarantee Agency (MIGA) are not specialized agencies in accordance with Articles 57 and 63 of the Charter, but are part of the World Bank Group

Though IBRD, IDA, IFC settlement commission etc do function within the UNO, the World Bank with its headquarters in Washington and US dollar as its principal currency of operation dominate the economic policy frameworks. USA manipulates through its voting rights. It is noted that in 2010 voting powers at the World Bank were revised to increase the voice of developing countries, notably China. The countries with most voting power are now the United States (15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), France (3.75%), India (2.91%), Russia (2.77%), Saudi Arabia (2.77%) and Italy (2.64%). Most developed countries' voting power was reduced, along with a few developing countries such as Nigeria. The voting powers of the United States, Russia and Saudi Arabia were unchanged. USA with its allies UK, Japan dominates policies as they constitute one fourth of the voting rights to exercise veto power. It is with this power WB has dominated the world and almost made globalization universal to make the dollar powerful.

Dollar Dominance
International trade in the modern period particularly after the colonial era was facilitated due to the availability and acceptance of gold as a standard of value and exchange. A fixed exchange rate was in existence during 1880 to 1914 where national currencies were valued in terms of weight of gold. The currencies that were on this standard allowed to convert in to each other with the cost of shipping gold being determined by the central banks. This standard was abandoned and an exchange standard was introduced where currency was linked to the currency on gold standard. It was in vogue till 1932 and abandoned and reintroduced. However, it was abandoned under the Bretton woods system and dollar assumed prominence in its place thereafter when Richard Nixon in 1971 ended the old standard forever. Mehdi Rehman in his paper on “Dominance of dollar and political hegemony” (Bangla Financial Express 22, Jan 2020) noted the facts as follows. “If sound macroeconomic foundation is the criterion for international status of a currency, why is the US dollar still the king currency? Many argue, internationalization of a currency depends primarily on strategic role and political power of a country concerned. Till date, fossil fuel is strategic goods, controlled by oil cartels. This is sold in US dollar. Wall Street strategically arranges such selling by way of political influence to fuel producers, especially OPEC (Organization of the Petroleum Exporting Countries) nations. Many governments in oil-producing countries faced tough situations like regime change due to oil sales in currencies other than US dollar. Even today many countries are in sanctions imposed by developed nations for the same reasons, plunging them into problems in conducting trade settlement in US dollar. As the Keynesian recommendation of International settlements Association did not take place, dollar assumed the role of king currency through manipulations of the oil markets in the 1970s and it continues. Thus, Trump boasts of putting these countries on their tenterhooks with the so called sanctions. USA has the largest stock of gold followed by Germany, Italy, France etc and India comes after China, Japan.

There are several studies to show how the US dollar as an international currency and medium of exchange was promoted by political arm twisting including regime changes. The following Table shows how the Asian countries have shifted to dollar and the year of its link. It is reported that US dollar has achieved this devious status through: 1. Manipulating The World Bank in giving loans in dollars, 2. Dollar invoicing in all international transactions, 3.Investing in international banks and promoting US based financial institutions, 4. International payments settlements expressed in dollars, 5. Using share market operations by US based operatives and 6. The shift from central planning to market in Central Europe was being facilitated in dollars.   Of the $28 trillion of dollar-denominated debt held outside the United States, just over $11 trillion was issued by foreigners. This means there is $11 trillion in dollar obligations from countries where revenue is earned in foreign currencies. This currency mismatch makes these countries vulnerable to sudden dollar appreciations that cause the real burden of the dollar liabilities to grow.  Thus the hegemony of dollar with a small beginning with Bretton woods peaked after it severed its connection with gold standard in 1971. It is reported that 44 per cent of foreign exchange turnover is done in dollars, 63 per cent of debt, 59 per cent of loans and 62 per cent of foreign exchange reserves are in US dollars. 40 per cent of global payments are made in USA currency. Therefore, the Federal Reserve policies have global implications. The monetary policy of US is in fact is a World policy that affects almost all the countries on the globe particularly after globalization. In this background why not USA behave differently as a hegemon?

 Table 1: Asian Economies and the Dollar Anchor

Country                                Start of the dollar anchor
Philippines                           1945
Japan July                             1947
Korea February                  1953
Indonesia April                    1969
Pakistan January                1971
Singapore June                   1972
Hong Kong July                   1972
China (Mainland) January 1974
Malaysia September         1975
India August                        1979
Vietnam January                1992
Cambodia January            1994

Source: Ilzetzki, Reinhart and Rogoff (2017).

The dominance of dollar is studied by several scholars.  One of the prominent and often cited studies is related to the studies conducted by Ms Gita Gopinath of IMF particularly with reference to Trade and Finance. She has noted that the dominance of US is due to its systematic approach to attain the mission. Gita has cited  Eichengreen (2010) who said that, “experience suggests that the logical sequencing of steps in internationalizing a currency is: first, encouraging its use in invoicing and settling trade; second, encouraging its use in private financial transactions; third, encouraging its use by central banks and governments as a form in which to hold private reserves.” She has further noted that, “I document that the dollar’s share as an invoicing currency is 4.7 times its share in world imports and 3.1 times its share in world exports. In the case of India, 86 percent of its imports are invoiced in dollars while only 5 percent of India’s imports originate in the United States. Similarly, 86 percent of India’s exports are invoiced in dollars while only 15 percent of India’s exports are to the United States. …It is interesting to note that even in the case of Japan and the United Kingdom, whose currencies are reserve currencies, only 40 percent of exports in the case of Japan and 51 percent in the case of the United Kingdom are invoiced in their own currency. The real exception here is the United States, with 93 percent of its imports and 97 percent of its exports invoiced in its own currency. “ A consequence of dollarization of world finance is that firms outside of the United States often suffer a balance sheet (currency) mismatch problem. This is because dollar borrowing in many cases is done by firms that do not have corresponding dollar revenues, so that these firms end up with a currency mismatch and can be harmed by dollar appreciation as established by Aguiar (2005).

One could argue that it was America’s free trade policy and market friendly approach that made it number one in the World. But as noted by economists above, it is not through markets alone that it could achieve the dominance it is through non-economic and political and through other manipulations it has marginalized its competitors. China has also been trying to ape America in following the same approach of invoicing in remnabi, remnabi loans etc to emerge as an alternative force in trade, but it has always been resisted. Through a concerted policy push, the renminbi’s share as a settlement currency in China’s trade has grown from 0 percent in 2010 to 25 percent in 2015. These are still early days and the global adoption of the renminbi will require full convertibility of the renminbi, capital account liberalization, and stability of and trust in Chinese financial institutions and central bank policy, all of which can take time. But it has to undergo several troubles and tribulations to compete with USA.

The above is a brief narrative of how the USA has emerged as the World number one by manipulating institutional structures like the World Bank, Trade and regional groupings and with the dollar dominance. The World suffers due to the trade and business links with America and the countries are forced to breathe in and breathe out as does America. There is no alternative (TINA) except to demolish not only the theoretical cobweb built by its intellectuals, but also destroying the biased institutions like The World Bank, dollar, trade groups etc. that are inimical to the very survival of the third world. Covid -19 is a manifestation of this condition and it has thrown opportunities to the world to experiment with unlimited possibilities.

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Apr 29, 2020

Chalam K S

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