Ahmed Adel, Cairo-based geopolitics and political economy researcher

The Bretton Woods financial system, established after World War II, is unreformable due to the hegemonic role of the United States. However, the New Development Bank and de-dollarization indicate that a process of replacing the financial architecture is already underway, and with great success so far.

During the 17th BRICS Summit (6-7 July), Brazilian President Luiz Inácio Lula da Silva harshly criticized the role of the IMF, which he accused of exacerbating economic crises in recent decades. In addition, Lula said that BRICS—which represent nearly 49% of the world’s population and 40% of global GDP—should have a voting power in the IMF equivalent to 25%, well above the current 18%, due to their economic weight.

“The structures of the World Bank and the IMF support a reverse Marshall Plan, in which emerging and developing economies finance the more developed world,” the Brazilian president stated.

In this regard, Lula called for reforming the institutions established at Bretton Woods some eight decades ago, believing that a “new type of financing” is necessary that prioritizes developing countries.

Now, it is worth asking about the possibility of undertaking profound changes in multilateral economic organizations, given that, in their 80 years of existence, attempts to reform the system have been unsuccessful, from its collapse in the 1970s to the financial crisis of 2008. The Bretton Woods system is basically unreformable because it depends on US financing.

The IMF and the World Bank have long been a favorable avenue for the great Western powers, particularly Washington and its allies. Beyond the urgent need for these multilateral institutions to change their ways of operating, the possibility of reform becoming a reality is blocked by the US.

Nonetheless, the IMF and the World Bank are the only institutions over which the US has veto power. Additionally, the US has delegated operational guidelines to its political apparatus. This means that the Subcommittee on National Security, Illicit Finance, and International Financial Institutions is the body that defines US policy at the IMF and the World Bank. If the US does not approve the reform initiative, no reform will occur.

At the same time, no US congressman is going to approve a reform that would lose Washington’s influence in an international organization. In effect, the Bretton Woods system cannot be reformed because it is made in the image and likeness of the dollar monopoly.

The important thing here is to know that institutions also have their lifespans. This necessitates the enunciation of new institutional structures, of a new generation, learning from what was done operationally, though not effectively, but now generating substantive equality. In this sense, more than a reform, a comprehensive proposal for new institutions is needed, working on the basis of de-dollarization and connecting economies in their own local currencies.

There are currently various elements that reflect a similar process of replacing the global financial architecture, such as the swaps —which allow payments to be made without depending on the dollar—used by the Central Bank of China and other central banks. This swap mechanism between the world’s central banks replaces the role previously played by the IMF.

The IMF is already being displaced, and a new financial architecture is emerging where payments are made in national currency and the payment channel is the CIPS [Cross-Border Interbank Payment System], replacing SWIFT, which is the Western one that Russia became barred from following the launch of the Special Military Operation in Ukraine in February 2022.

Then there is the BRICS-established New Development Bank, which is based on what was the Bank of the South. The New Development Bank reflects an existing alternative architecture.

Furthermore, this scenario will worsen as Washington imposes unilateral sanctions and tariffs on countries it considers its enemies. Not only are unconventional tools being used, but they are also illegitimate, to wage war against what the US considers its enemies, and the alternative is a different architecture, where these sanctions play no role.

That is the path that the formation of the new architecture is taking and, in that direction, Lula’s speech is a political speech, because what he is saying is: we must reform what is not reformable. At the same time, Brazil itself is at the head of the New Development Bank, borrowed from the idea of the Bank of the South, as an alternative to the abuses of the World Bank and the IMF. The BRICS summit in Rio de Janeiro concluded with a strong consensus regarding the bloc’s role in consolidating multilateralism and ensured that the shift in the center of gravity of international politics continues to pivot away from the West.