On May 3, the board of the World Bank confirmed an American, Ajay Banga, as its president for the twelfth consecutive time going back to the institution’s founding in 1946. The development bank’s sister institution, the International Monetary Fund, the world’s financial-crisis firefighter, is run by a European—the twelfth consecutive one as well.
This traditional transatlantic division of power has understandably come under increasing criticism over the decades as developing countries such as China, India, and Brazil have come to play a vastly larger role in the global economy. The tradition survives in spite of the criticism because American and European money remain critical to their activities. Yet when we consider its genesis and present logic, it seems clear that both Washington and the Brussels-London axis would be better off abandoning their birthrights in favor of more substantial sources of global influence—not to mention actual effectiveness.
When some fourteen years ago I began researching the history of the two “Bretton Woods” institutions, I expected to find evidence of a hidden transatlantic deal divvying up their control. I could not imagine what its basis could have been, though, as the United States was, at the end of World War II, at the apex of its economic and military power and would certainly have chosen to control—if it could only have controlled one of them—the more important IMF.
What I discovered scattered among various historical documents was not a deal, however, but a unilateral decision of the Harry Truman administration in March of 1946 to claim only the World Bank presidency, in spite of President Truman having intended, just a few weeks earlier, to bull through the American architect of the IMF as the Fund’s leader—its managing director. Treasury technocrat Harry Dexter White, who had already been tapped to be U.S. executive director of the Fund, was the obvious choice, not only in Washington but around the European capitals. The problem, it turned out, was that he was particularly favored in Moscow.
Though the Soviet Union never ratified the Bretton Woods accords, it had for some years used White as an agent of influence in Washington. White, who was fascinated with Soviet economic planning and considered the country a valiant and reliable ally during the war, had for years been advocating for it in policy debates and defending fellow officials accused (rightly, in some cases) of espionage activities. He had also provided it with classified information. Confessed spy Elizabeth Bentley included White in her list, detailed to the FBI in November 1945, of dozens of Soviet assets in the U.S. government. I personally reviewed thirteen thousand pages of FBI material on White released under a Freedom of Information Act request; these included partial decrypts of eighteen Soviet intelligence cables which were declassified in the mid-1990s and referenced White, under his various codenames, and his activities on Moscow’s behalf.
In February 1946, FBI Director J. Edgar Hoover prepared a long memo for the president arguing that White was a national security risk and that he should have no role at the IMF. Truman hardly trusted Hoover’s judgments on such matters, but recognized that he had a major political problem on his hands. If he went ahead with the managing director nomination, Hoover would leak his findings. But if he appointed another American, it would raise unwelcome questions about why White was passed over. And so, in March, Truman’s secretary of the treasury, Fred Vinson, informed the British that Washington, in order to secure the confidence of the American investment community, wanted presidency of the World Bank. It would, graciously, leave the IMF to a European.
Thus was born, of the need to cover up a possible spy scandal, the transatlantic division of power in the new financial architecture. Nearly eight decades later, neither side wishes to cede it for fear of looking weak with their electorates. The Barack Obama and Joe Biden administrations have thrown the world a bone by appointing foreign-born Americans—Korean-born Jim Yong Kim and Indian-born Ajay Banga. But by the end of Banga’s five-year term, the United States will account for a still-lesser portion of global output, and pressure to give up the claim will ratchet up further.
In the face of such growing and justifiable pressure, is it sensible for Washington to hang on to this privilege? I think not. It was of no use to the Biden administration that David Malpass, Banga’s Donald Trump-appointed predecessor, was an American. Malpass was, at best, barely lukewarm toward the administration’s top-priority climate agenda. And so the important matter in Washington should not be the passport of the Bank’s president, but the policies he or she stands for.
With China’s continued rise toward global superpower status, the United States needs to build and buttress alliances that have an interest in advancing the “rules-based international order” put in place after World War II. The only viable alternative is Sino debt diplomacy, through which Beijing seeks to replace a focus on good governance and transparency with clientelism. The way forward is for Washington, Brussels, and London to agree openly that the next World Bank and IMF heads will come from other nations.
Given that the United States, European Union, and United Kingdom represent nearly half the world’s output, they will still have an outsize say in the selection. And Washington would retain unique veto power over major institutional changes. Yet, by relinquishing an assumed birthright whose legitimacy naturally withers with time, Washington will neutralize assertions from Beijing that alternative development institutions—such as its own creation, the Asian Infrastructure Investment Bank—are necessary to overcome unreasoned U.S. resistance to governance reform. It would also give a much-needed boost in credibility to pedigreed institutions which, for all their flaws, still play a positive role in global development and financial stability.
This post was written for the Council on Foreign Relations’ Renewing America initiative—an effort established on the premise that for the United States to succeed, it must fortify the political, economic, and societal foundations fundamental to its national security and international influence. Renewing America evaluates nine critical domestic issues that shape the ability of the United States to navigate a demanding, competitive, and dangerous world. For more Renewing America resources, visit https://www.cfr.org/programs/renewing-america and follow the initiative on Twitter @RenewingAmerica.