The IMF must keep pace with a changing world economy

The International Monetary Fund needs finances and governance that reflect the underlying balance in the world economy if it is to remain universal and effective.

Expert comment Published 25 April 2025 4 minute READ

Creon Butler

Director, Global Economy and Finance Programme

The Trump administration’s recent criticism of the IMF has put the institution’s future global role into the spotlight. Treasury Secretary Scott Bessent has accused the Fund of failing to hold China to account while Project 2025 has raised fears that the US might withdraw entirely from the institution. However, other commentators have pointed out that the IMF has historically been a vital instrument for Washington’s economic and financial policy and continues to serve US interests.

The IMF itself defines its mission as ‘furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity.’ It aims to pursue these goals by providing policy advice, acting as the lender of last resort to countries, and helping to develop countries’ technical capabilities in macroeconomic and financial policy.

President Donald Trump’s new economic paradigm does not directly challenge the role of the IMF in the way that his tariff policies weaken the WTO or his cuts in US aid undermine the World Bank. Moreover, given the increasingly frequent shocks to the world economy, a global institution tasked with preserving macroeconomic and financial stability is needed now more than ever. 

But while the IMF is good value for both the US and the world overall, this will only remain the case if the institution evolves to reflect fundamental changes in the global economy. These include the growing economic weight of some emerging economies, particularly China, the consolidation of the EU/eurozone as a single economic block, and the demands of many smaller economies for more influence over IMF policies. 

While adapting to these changes will require the US and some other advanced economies to share power more equally within the IMF, it will allow them to retain the broad global benefits the Fund brings in the long term.

Influence within the IMF

At the heart of the issue is how countries are weighted within the IMF. 

This is dictated by the system of quotas at the core of IMF finances and governance. Each member country is assigned a quota linked primarily to its economic size, but also other to factors including its degree of economic openness and level of foreign exchange reserves.   

The quota enables a country to draw down funds in a crisis in the form of Special Drawing Rights (SDRs). These are valued using a basket of five major currencies (US dollar, euro, RMB, yen, sterling) and can be converted into member country currencies, including US dollars. A quota therefore represents both a right to access hard currency funds and an obligation on issuing countries to provide them to the IMF when needed. 

The present formula for determining quotas substantially underweights emerging market and developing economies, including China. 

Countries in need can negotiate access to additional funds outside of their quotas, provided that they accept IMF conditions. The IMF funds the bulk of its administrative expenses from fees and charges levied on the loans it makes. 

Quotas also determine a country’s overall voting weight in the Fund’s governing board. Decisions are typically taken through consensus, but the underlying voting weights of different members have a very strong influence on the direction of policy. Quotas dictate whether a country has a board seat to itself and may also give a veto over the most important decisions which require an 85 per cent majority. Currently the US is the only individual country with a veto, although the EU/eurozone also has sufficient votes, collectively, to form a blocking minority. 

A fundamental critique of the IMF’s current structure is that the present formula for determining quotas substantially underweights emerging market and developing economies (EMDEs), including China. In total, EMDEs account for some 60 per cent of global gross domestic product (GDP) but hold just 40 per cent of IMF votes. China’s quota of 6.4 per cent is less than Japan’s 6.47 per cent, while India’s voting weight is just 2.75 per cent. 

Quotas are reviewed every five years and the formula for determining their overall size and distribution can in principle be changed relatively easily, provided all members agree. But the last time a redistribution of votes was agreed was in 2010, at the height of the collaborative international response to the global financial crisis.

The latest review is due to end in June 2028 and geopolitical tensions between the US, EU, China and other emerging economies are likely to make negotiations very difficult.  

The risk of rival institutions

This situation poses major risks.  

China agreed to a $320bn rise in the total value of quotas at the end of 2023 without any change in distribution among countries.  But it is unlikely to do so again.  This would prevent the IMF from increasing its lending resources in line with likely growing needs. 

China may also decline to contribute to bilateral or multilateral supplementary lending to the IMF, which has typically been the solution when quota increases have been delayed.

More seriously, China and some other emerging economies may conclude that their only option is to establish a parallel or rival institution to the IMF.  Rather than work collaboratively with the IMF as other regional liquidity institutions such as the Chiang Mai Initiative  and European Stability Mechanism have done, a rival institution might be established as an alternative global liquidity mechanism.

It is not impossible that the US may concede some ground to China as part of a broader trade agreement.


Such a move, particularly if accompanied by a declining Chinese focus on the IMF, would weaken the global financial safety net, first by fragmenting resources and second by reducing the authority and independence of IMF staff in critical functions such as determining emergency lending conditionality, debt sustainability assessment and surveillance of global imbalances and currency misalignments.

This in turn may push countries to further build up their foreign exchange reserves as an alternative to relying on the IMF, which would be both costly and risky.  

Potential solutions

To head off this scenario, IMF members need to develop a new policy package that appeals to diverse viewpoints. This could include three main elements.  

First, an ‘intermediate’ quota re-distribution package that gives China and some other emerging economies more weight within IMF finance and governance without, for example, conceding new veto powers. 

Second, reforms with two principal aims: to reinforce the EU/eurozone’s voice within the IMF Board, complementing renewed efforts to complete the EU’s Savings and Investments Union; and to strengthen the voice and voting weight of small countries, bolstering the IMF’s broader legitimacy.  

Third, a new workstream to assess the scope to expand the SDR’s use as a reserve asset, given its potential to bridge the gap between the US dollar, euro and Chinese yuan renminbi.  

Such a package’s potential for success will depend on the future dynamics in the US-China relationship. It is not impossible that the US may concede some ground to China as part of a broader trade agreement, helped in part by China’s relatively positive track record on global financial issues.