China and the Global Financial Architecture: Keeping Two Tracks on One Path – A report for the Friedrich-Ebert-Stiftung

After the publication of my book The Cost of Free Money, which takes stock of the deterioration of the rules-based international order in light of significant economic and geopolitical challenges, I was invited by the Friedrich-Ebert-Stiftung (FES) to do some work looking at China’s role in the international institutions. The report, which is titled China and the Global Financial Architecture: Keeping Two Tracks on One Path, was written for FES’s China desk at their Berlin headquarters to help Germany’s parliamentarians better understand China’s role in the international monetary and financial systems in the year that Germany chairs the G7.

The report and its shorter executive summary offer a framework for understanding and discussing the structure of the international financial architecture and its purpose in providing the essential public goods of financing for development and a global financial safety net. The report examines the evolution of this architecture since its creation in 1944, especially China’s role as both a member of financial institutions and a builder of new ones. It discusses the consequences of China’s growth for the future of this architecture, and considers options and recommendations for other countries, especially members of the G7 and in particular Europe’s members, on how best to engage with China to get the best possible outcome for all.

The report’s main conclusions are as follows: 

  • The world cannot function without China. China is a critical component of the global financial architecture as both a member of the international institutions and as an institution-builder.
  • China is not adequately accommodated for in the current global order. Unless the international institutions are reformed, China could decide to go its own way, threatening the integrity of the global financial safety net.
  • China is not a market economy nor a liberal democracy. The challenge for the G7 is to find areas of common interest where it can work with China, encouraging it to be a productive and engaged partner in the global order.

The full report can be downloaded here and the executive summary can be downloaded here:

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