Chinese President Xi Jinping, center, shows the way to the guests who attended the signing ceremony of the Asian Infrastructure Investment Bank. (AP Photo/Takaki Yajima, Pool)
Chinese President Xi Jinping, center, shows the way to the guests who attended the signing ceremony of the Asian Infrastructure Investment Bank. (AP Photo/Takaki Yajima, Pool)

The UK has reasserted its desire to be a leader in the world economy. If it pries additional followers away from the US, as has already happened with France, Germany and Italy,  we could end the inertia that has beset global policy making in recent years.

Prime Minister David Cameron’s pledge to join the Asian Infrastructure Investment Bank (AIIB) despite the Obama administration's objections is perhaps the most significant development in global economic governance since the BRICS nations decided to formalize their relationship through an annual summit. That decision balkanized global governance, introducing an us-against-them character to the G20. The British move to endorse an institution that will be heavily influenced by Beijing shows a maturity that could lead to more effective co-operation between older and newer powers.

Brazil, Russia, India, China and South Africa found common cause in the G7’s unwillingness to fully share the levers of power. The elevation of the G20 at the Pittsburgh Summit in 2009 didn't quite lead to a new world order, as promised. Rather than walking off into the sunset, the G7 reasserted itself, beginning with the late Canadian finance minister Jim Flaherty’s decision to hold a meeting of his peers in Iqaluit in 2010. The G8, which was created to coax Russia into becoming a more co-operative force in global affairs, became a place for the US, Japan, Germany, the UK, France, Italy and to gang up on their troublesome partner.

And of course the older powers just couldn't let go of their monopolies on power at the International Monetary Fund and World Bank. Europe rushed to replace France’s Dominique Strauss-Kahn with France’s Christine Lagarde at the IMF. Washington did the same when Robert Zoellick resigned, asserting its traditional prerogative to choose the leader of the World Bank, putting forward Korean-American Jim Yong Kim.

The final blow to whatever all-for-one spirit that may have existed during the financial crisis was the US’s failure to ratify the overhaul of quota shares at the IMF. Nothing significant changes at the IMF without US approval because Washington holds an effective veto. And because the quota overhaul would require a spending commitment, Congress holds a veto over the administration’s desire to approve the change. It is tempting to put all the blame on Republican isolationists in the House and Senate, but the White House also has been unwilling to pay the Republican leadership’s price for a vote on the issue. So in effect, the US is an anchor of the world’s desire to move forward.

Day-to-day, the holdup may not matter much. But the symbolism is terrible. The G20 expresses its “disappointment” with Washington’s intransigence at every meeting, most recently at the gathering of finance ministers and central bank governors in Istanbul in February. Nothing changes. The situation makes the G20 look powerless. The group in 2014 gave the US an ultimatum: ratify the reforms by the end of the year or else. The US did nothing. The G20 responded to this slight in Istanbul by calling on the IMF to “further its work” on ways to proceed without US support. That’s not the kind of response to a snub that will get Congress’s attention.

But the UK’s decision to join the China-backed AIIB might.

What has been missing from this standoff over the quota overhaul are examples of the US attitude having any real-world consequences. There is the New Development Bank, aka the BRICS Bank. But it never has been clear that immediate ratification of quota changes would have stopped the BRICS countries from proceeding with that initiative. And certainly that hasn't been enough to convince American lawmakers to change their minds.

Earlier this year, I argued that if the G20 was serious, it needed to pursue a coordinated political strategy aimed at persuading Congress to come around. I wrote that one of the elements of the strategy should be visible steps by G20 members that they are getting on with global economic co-operation with or without the US’s approval. The UK’s decision to ignore Washington’s protests and sign up for the AIIB is just such a step.

Let’s be clear: There is nothing to indicate a link between the quota impasse and the UK’s embrace of the AIIB. The UK acted in its national interest, first and foremost. But in doing so, the Cameron government has demonstrated how Western countries frustrated by Washington’s antics can move forward. France, Germany and Italy have already confirmed their intentions to join the AIIB. Australia suddenly appears to be getting over its reservations about joining. Canada, South Korea and all the rest of the G20 countries also should follow the UK’s lead. It would be a subtle way to show the US that the Bretton Woods era truly is over.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.
  • Kevin Carmichael is a senior fellow at CIGI and the national business columnist at the Financial Post.