Discriminatory nature of the modern global monetary and financial system

The global economy has accumulated significant baggage of unresolved problems. The negative trends currently observed around the world including market volatility, spiralling inflation, and high debt load on the private and public sectors significantly limit the field for potential further manoeuvres to stimulate growth. In such conditions, when further augmenting of debt and financial crises can provoke a chain reaction, countries should make well-considered decisions and try their best to take coordinated action. However, there are increased protectionist sentiments on the part of a number of national governments, sanctions voluntarism and attempts by a small group of market participants to force others to transition from inclusive global development to an exclusive model.

To a large extent, the global economy has been driven into this situation by the irresponsible macroeconomic and financial policies that the developed countries, primarily the G7, have pursued for years, relying on uncontrolled printing of money and the accumulation of unsecured debt. The trend began with the global financial crisis in 2008 and intensified during the Covid-19 pandemic – the leading economies have shown a tendency to use their “printing press” every time they needed to make up for the rapidly growing budget deficits and artificially support the population’s living standards. Over the past two years alone, the total money supply in the United States has grown by almost 40 percent, and in the European Union, by about 20 percent.

Obviously, the monetary authorities in the United States and the eurozone made such decisions without much regard for what this would imply for the rest of the world, countries that kept a significant share of their savings and attracted funding in dollars and euros. Naturally, a significant part of the money injected into the economy was immediately invested outside the issuers’ markets. Western companies started excessive buying of goods, services and assets around the world, which spurred global inflationary processes; that, in turn, exacerbated the poorest countries’ difficulties and significantly complicated the achievement of sustainable development goals. The widespread rise in prices, and the food and energy crises of recent years are the result of ill-conceived decisions and flagrant monetary and economic policy blunders by the countries that constitute the collective West and the further implementation of the neo-colonial approach to maintaining the so-called golden billion’s standard of living.

In the new conditions, the need for a radical transformation of the international monetary and financial system has become obvious. The existing Western-centric model turned out to be incongruous in a multipolar world order. It became a tool for achieving political goals or trade and financial advantages. Washington has consistently demonstrated its inability to be an impartial guarantor of the global financial system and is increasingly abusing its position. It needs to be recalled that, after the approval of the gold-dollar standard in 1944, the United States increased its balance of payments and trade deficit so much that it led to something known as “Nixon shock” and the eventual collapse of the entire Bretton Woods monetary system by 1971. It was replaced by the Jamaican currency system, based on the free convertibility of currencies without reference to gold. However, as it turned out later, all it did was expand the circle of states that could afford to live on credit. Only countries that issue key reserve currencies have the privilege of increasing borrowing and then depreciating it, while the rest of the world is left to live with whatever it has. This is the modern embodiment of the imperial model involving prosperity of the core at the expense of periphery.

This same group of Western countries regularly demonstrates the tendency to use their dominant position in the share capital of the Bretton Woods institutions and other international financial institutions and development banks. Initially neutral platforms, which received a purely financial and economic mandate when they were created, are being dragged into political debates, incited by Washington, to the detriment of equal and fair development goals. The West has included them in its sanctions arsenal and is using them, bypassing the UN, to impose illegitimate unilateral restrictions and economic blackmail on unwelcome countries, as well as to promote its own economic expansion.

The global financial institutions, which the international community created to narrow the gap between rich and poor countries, have been made hostage to the few “privileged” shareholders who decided that they have a moral right to provide financial assistance based on the “friend-foe” principle. The leadership and management of the International Monetary Fund (IMF) and World Bank (WB) organisations regularly take unacceptable decisions to block the allocation of funds for “technical” reasons such as outstanding debts and minimum number of days in arrears, or unsubstantiated political pretexts such as political uncertainty, the absence of a legitimate government, and the inclusion of countries that apply for financial support on sanction lists.

For example, on November 1, 2020, the IMF and the WB suspended the evaluation of Venezuela’s positions in their management bodies and excluded it from their multi-country  directorates. In other words, Caracas was banished from the decision-making process even though it retained its stake in the share capital and its guaranteed rights as a shareholder. It is notable that the financial bodies’ decision was not based on the countries’ vote but on the volume of the voting share, which means that the decision was based on the opinion of the G7 countries. Neither did they hold an official survey of the member states’ opinions. Despite the attempts to present the situation as a “procedural compromise,” it is a clear example of the management abusing its powers so as to put pressure on the government that is seen as undesirable in the West, and hence on the country’s legitimate leader, Nicolas Maduro.

Syria is another example of this behaviour. Pressured by the main shareholders led by the United States, all World Bank operational activity and technical assistance to Syria were halted following the start of the civil war in 2011. Since then, the WB group has only provided assistance to Syrian refugees through the provision of funds to neighbouring states. Although the budget of the International Development Association (IDA) stipulates the allocation of $1 billion to Syria in 2020-2022, the IDA management has been delaying the transfer of the funds to Damascus, allegedly because it is unable to provide administrative support and because Syria must first repay $13 million in payment arrears to the World Bank. During the Covid-19 pandemic, the IMF management took a selective stand on the requests for emergency financial assistance submitted by some (that is, not Western-oriented) countries, including Belarus, Iran, Syria and Venezuela. Political concerns prevailed over social and humanitarian considerations, although the requests were submitted in accordance with the procedure based on the need to deal with the emergency epidemiological and social situation.

It is also unacceptable that international financial institutions joined the US and EU’s unilateral illegitimate sanctions. The World Bank has not approved any new loans to or investments in Russia since July 2014 based on the position of the G7 countries. As the result, the Russian economy has not received at least $1.7 billion that should have been allocated under 10 approved projects. Russia’s private businesses have been denied access to the instruments of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). In 2022, the WB Group stopped all its programmes in Russia, including technical support and assistance to non-financial sectors, and curtailed the operation of its offices in Moscow without an official notification.

Likewise, the European Bank for Reconstruction and Development (EBRD) joined the sanctions pressure on Russia in 2014. Violating Russia’s shareholder rights (Russia is the seventh largest shareholder), it adopted a “political guidance” on blocking all operations with Russia at the level of the Board of Directors. In other words, the EBRD restricted operations with all Russian counterparties long before its Board of Directors adopted Resolution 245 on the suspension and modification of Russia’s access to bank resources was adopted on April 1, 2022. The bank used a similar method to suspend its operations with Belarus from 2010 to 2016 and after 2020. As the result of this discrimination, the share of Russian programmes in the EBRD portfolio has been slashed from 30 percent in 2013 to less than 2 percent in 2021.

Washington and its partners’ unwillingness to change the status quo in international financial institutions can be seen from the long-standing effort to stall the IMF reform. The agreements on the Fund's management system reached back in 2010 at the G20 Seoul summit have not yet been fully implemented. Over the past 12 years, there has been no progress in calculating shareholder quotas based on more equitable criteria which is the most important concern for the developing countries. At the same time, the underrepresentation of certain countries in the Fund, primarily BRICS members, in terms of their actual economic impact, is becoming increasingly obvious. Contrary to IMF statutory documents, attempts are being made to ban the provision of US dollars to Russia (and Belarus) in exchange for special drawing rights (SDRs) which undermine confidence in the US currency and the foundation of the existing system of international settlements.

International payment and settlement systems that were designed as neutral market-based tools were unable to say no to acting upon the political orders under the joint pressure coming from the countries of their jurisdictions and the countries of citizenship of the top management. Thus, in the spring of 2022, VISA and MasterCard shut down access to savings in the Russian banks for Russian citizens and companies outside Russia. In some cases, this led to difficult humanitarian situations which were resolved only after the Russian authorities had provided emergency assistance. The SWIFT financial messaging system is another case of the Euro-Atlantic financiers’ efforts to monopolise cross-border cash flows. Over a half a century of existence, this communication channel has become so deeply integrated into the global settlement infrastructure that it caught the eye of Western politicians as a potential restriction tool and was used against Iran and Russia.

At the same time, regardless of the use of a particular channel for transmitting financial messages, payments in US dollars between counterparties may be blocked by US correspondent banks (clearing centres) for political reasons. Similar mechanisms have been created for the euro, pound sterling and other currencies. This “hidden functionality” discredits the ability of these currencies to be used as a means of settlement and savings. Russia faced these costs in 2022, when about $300 billion of Russian gold and foreign exchange reserves were illegally frozen in violation of their sovereign status. It is estimated that Iran's blocked assets in Western banks amount to over $100 billion, Libya’s over $60 billion, Venezuela’s $30 billion and Afghanistan’s $7 billion. The list of resources that have been hung up for an indefinite time goes on and on, and national savings are thus becoming a source of free funding for major Western banks, and their authorities have fewer reasons to reconsider earlier decisions to block particular funds.

The above facts highlight the attempts of the United States and its partners to gain competitive advantages through illegitimate unilateral restrictions. Measures contrary to international law and free competition principles are being introduced not only against geopolitical competitors like Russia, but also against everyone who disagrees with the military-ideological dominance of the United States. Given the new geopolitical realities, trade, economic and investment ties between Russia and other sovereign countries can only be secured by renouncing the use the international settlement tools that are tethered to the West. We are convinced that at this point, all sovereign states are interested in building an international financial and settlement infrastructure that is resistant to external pressure and meets the heightened criteria for security, confidentiality and reliability. Joint efforts to create alternative models speed up the transition to a more equitable multipolar global financial system.