Work in progress

Multilateral bank reforms will need more effort

The meeting of the G20 finance ministers and central bank governors in Marrakech, Morocco, ended with a shared declaration — which is in itself a relief, given the paralysis that had gripped the organisation in the months leading up to a breakthrough leaders’ summit in New Delhi. The G20 is divided into two tracks: The Sherpa track, which picks up multiple current subjects for multilateral deliberation and therefore grabs most of the headlines; and the finance track, which does most of the nuts-and-bolts work that gives the G20 its actual relevance. There were several issues before the finance track over the ongoing year, and some progress has been made on them — though not as much as was hoped for at the beginning of India’s presidency.

One major concern has been the desire — expressed among others by Prime Minister Narendra Modi — for a shared approach to the regulation of crypto assets. Crypto assets, by their very nature, challenge the monetary sovereignty of nations. But they are notoriously difficult for any single central bank to regulate. Indeed, they are often used to evade capital controls. Their backers claim that they provide important alternative stores of value for investors. But, in practice, they are speculative investments. Mainstream finance is less invested in crypto assets than some had feared a few years ago, but if they remain unregulated, the possibility that they could spark a financial crisis cannot be left unexplored. The G20 meeting called for a “swift and coordinated” implementation of a regulatory road map designed by the International Monetary Fund and the Financial Stability Board. The main thrust of this road map is for the automatic exchange of information between regulators globally on crypto holdings. There is also a demand for comprehensive risk management structures for crypto companies, a matter only made more urgent by well-publicised fraud in prominent crypto exchanges.

One other domain where action was expected was the reform of multilateral development banks (MDBs). There were multiple interest groups at play here. Many developing countries wanted MDBs to lend more. But the developed world did not want to increase the capital committed to these institutions. Meanwhile, some smaller developing countries wanted the MDBs to shift from poverty alleviation and infrastructure to financing adaptation to climate change. Green activists, meanwhile, wanted climate considerations to be mainstreamed into all the MDBs’ lending. These multiple aims are not easy to reconcile. One approach, following an initiative launched by the G7 grouping under the German presidency last year, was a capital adequacy review meant to get the MDBs to do more with the same amount of capital. The leaders’ summit in September accepted a report, written by Larry Summers and N K Singh, based on these principles. This latest meeting of the finance-track officials has also suggested that multilateral lending move to the use of “country platforms”, in which national authorities set up mechanisms that can accept development finance and then disburse it in accordance with national priorities. While this may at first appear to further democratise lending and escape the choices that must be made between the various priorities for development finance, it has problems of its own. In India, for example, it may strengthen Union government finances at the expense of local-level projects currently financed by MDBs. Thus, while some progress has been made on important finance-track issues, there is much discussion still ahead.