The New IMF Head Will Be European

Wow, all sorts of fun speculation that comes along with the sudden and unexpected incapacitation of the acting head of what is basic the largest bank in the world. I'm about to embark on some "international monetary economics" stuff, which I haven't reviewed in a while. Take what I say with a grain of salt, and if you find any errors, please let me know and I'll correct them.

Okay, there are articles proposing that the appointment of the new IMF chief will be some one not from the US or Europe. I'm betting that it will be a European.

Many argue that since the IMF loans quite a bit to the "developing world" and imposes the conditions for those loans, that it would make sense for a representative from somewhere that is not the EU or the US. Well... yes, but you would be saying that the IMF is just another World Bank. It is not. The IMF was set up to stabilize currency (namely exchange rates); its a worldwide Federal Reserve. The IMF's main goal is to deal with monetary policy, not development. That is the World Bank's job (and there's plenty to praise and criticize there). The IMF just hasn't had much reason to get heavily involved in the "developed" world until the recent recession hit.

So why do we discuss austerity measures with regards to the IMF? Well, government spending puts more money into the system; more money means more inflation; more inflation means (usually) more instability in the exchange rates. Ta-da! MONETARY ECONOMICS'D! Developing countries in the past forty years have for the most part been the sufferers of monetary crises, hence the involvement of the IMF. Now many of these loan requirements (austerity measures) are unpopular and harsh, and often times can be counterproductive or crippling to longer run growth (we can argue about that later). But it is important to remember that the government of this country is in the end choosing to impose these measures on themselves in order to get IMF money and hopefully pay it back. Unless they're Argentina, but I digress.

So where does the money come from? Well the vast majority comes from the US (about 17%), Japan (6%), Germany (5%), the UK (5ish%), France (5ish%), and China (4ish%). The IMF then votes not based on single country representation, but scaled to their contribution. So if you're afraid the Europeans and Chinese will dominate the US' influence then let's break down the voting numbers in an overly simplistic form (check the link for a more rigorous definition):
The US has 371,000 votes. The next highest are the Japanese with 133,000 votes. It goes down from there.

So, honey, aint nobody going to do what the US/EU doesn't want at the IMF. Nobody. Unless they're Argentina... but let's not talk about Kirchner's penchant for welching on debts, except for those two bits he owes at the River Styx (too soon?).

The IMF is controlled by the US and EU. Let's not fool ourselves by thinking any differently. The last thing the US, UK, France, and Germany want is some one who does not have their best interest in mind; namely the stability of the dollar and the euro. Since the Yuan is pegged to the dollar (and perhaps someday to the euro), the Chinese don't want some one whose best interest is not the dollar or the euro.

The only exception on that BBC list that I can think of is Stanley Fischer, who let's face it will also be sincerely concerned with the dollar or the euro.

So long as the dollar or the euro are the top currencies of the world, the oil that greases the wheels of our ever-globalizing economies, those with these currencies interests at heart will hold power. And also if the "unspoken balance agreement" is true, if there's an American head of the World Bank (eyebrows McGee), then there will be a European head of the IMF. Let's just hope this one understands the difference between "seduction" and "assault."