Commentary: Global economic governance reform must pass reality check

Ahead of the annual spring meetings of the International Monetary Fund and the World Bank, U.S. Treasury Secretary Jacob Lew said it is necessary to have reforms to modernize the international economic architecture set up after World War II.

But the aim, in his opinion, is to preserve and strengthen the U.S. position and secure benefits for his country.

Such remarks, though not surprising, show that despite realizing the need for the reform of the existing global economic governance system, many people in the United States have not come to terms with the reality: the rise of the emerging economies.

The emerging economies are under-represented in the global financial architecture, even though the U.S. Congress finally approved a much delayed set of reforms last year.

Overlooking the increasing weight of the emerging economies and going down the road of consolidating U.S. dominance would only worsen the situation.

The rising of the emerging economies is a reality. They can no longer be ignored as key players and contributors of global growth. Emerging markets like China not only deserve to be better represented in the global financial governance system, but are also indispensable in future global framework.

"Emerging markets are a lot more important for the world economy today than they were 20 years ago or even 10 years ago," said Joseph Capurso, a senior economist at the Commonwealth Bank of Australia.

The emerging economies still have little say over what affects their interests. In the current cycle of U.S. interest rate hikes, they face adverse spillovers from the U.S. policymaking, which is based on its domestic economic conditions though the impacts are global.

The emerging economies are now much stronger, but it remains hard for the United States to budge. An economist has said that if a conference like the Bretton Woods were to take place today, "China would have a really big voice, India would have a decent voice, Brazil would have a decent voice."

Gao Haihong, a fellow at the China Academy of Social Sciences (CASS), said two reforms are badly needed to overhaul the current global financial governance system.

The first is a more diversified and therefore balanced global reserve currency system to suit the trade activities around the world.

The United States sees its interests in the U.S. dollar as the global reserve currency, but such a system should be improved so that the interest hikes in the United States won't be so much at the cost of others.

The other is the reform of the financial institutions so that emerging economies are given bigger say. As such, adding voting rights of the emerging economies in existing institutions and creating more institutions to patch up the current system are important issues.

These realities will eventually outweigh Lew's wishful thinking that the United States can still rig the global finance system to its own liking and maintain its position of global superpower at the expense of others.

Change relies on the United States being "generous." But as the weight of emerging economies increases, the United States may one day find that it can no longer afford to be "ungenerous." Endi