Power Shifts and Inter-Institutional Change in Global Finance: The Institutional Resilience of the IMF and Future Opportunities for Competing IOs

The international financial architecture is in flux. International financial institutions (IFIs) such as the International Monetary Fund (IMF) and the World Bank are facing increasing demands to adapt to ongoing power shifts from established powers, like the US, to rising powers, like China. However, despite some redistribution of voting rights and policy adaptations in favor of non-Western emerging economies, the primary institution in the regime complex of balance-of-payments lending, namely, the IMF, has proven highly resilient. Internally, it has fended off calls for a fundamental reform of governance structures and processes. Externally, unlike the case of the World Bank and the Asian Infrastructure Investment Bank (AIIB) in development finance, the IMF does, as of now, not face serious competitor institutions in balance-of-payment lending. While rising powers have sought to promote alternative international institutions, such as the Contingent Reserve Arrangement (CRA) and the Chiang Mai Initiative Multilateralization (CMIM) that better reflect their interests and ideas, the predominant view in the literature about power shifts and institutional change suggests that the strong network effects in balance-of-payments lending will continue to tie rising powers to the IMF as the legacy institution. This will, so the argument goes, persistently inhibit the establishment of meaningful rivals. In this paper, we challenge the assumption that the field of balance-of-payments lending is immune to power shift-driven regime complexity in the foreseeable future. Drawing on existing research in International Relations and International Political Economy, we aim to demonstrate how and under what conditions meaningful external institutional change in international balance-of-payment might become viable and provide early indications of its empirical imminence. In doing so, we also seek to understand when and how, in the future, cooperation or conflict between the IMF and alternative institutions might likely prevail. After all, the cooperative or conflictual relationship between the IMF and alternative institutions promoted by rising powers will have important implications for how resilient the IMF will likely remain in the evolving complex of balance-of-payments lending. In our paper, we, therefore, reconstruct a plurality of contingent, process-centered, and more or less distant pathways of inter-institutional relations between the International Monetary Fund (IMF) and alternative institutions promoted by rising powers. Depending on the interest constellations between emerging and established economies and challengers’ exposure to network effects, we project pathways of no external change (leading to inertia), institutional hedging (leading to duplication), complementary layering (leading to differentiation), or counter-institutionalization (leading to fragmentation). We spell out their key features, specify early indications for their respective materialization, and reflect on when and how political agency from the IMF and its Western and rising member states could contribute to (or prevent) a shift from one pathway to another. Focusing on the IMF, often perceived as the most resilient IFI, we demonstrate that (institutional) resilience is not a structural given but depends on political interventions and inter-institutional dynamics. This paper, therefore, offers an innovative and policy-relevant approach to future (inter-)institutional change in international finance and beyond.