Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
The author is a researcher at the Mosabal Ramani Business Evasion Center at Harvard Kennedy School and is a former assistant secretary for international affairs at the US Department of Treasury.
Donald Trump has already withdrawn the United States from the Paris Climate Agreement and the World Health Organization. Is the IMF next?
Project 2025, the controversial and radical policy manifesto for the second Trump term issued by Heritage Foundation Think-Tank, advocates for the US to withdraw from the fund. The authors argue that the IMF supports economic theories and policies that violate American principles of free markets and limited government.
Withdrawal from the fund is an important goal. If they do so, the US will lose all its influence over the IMF policies and operations. More importantly, withdrawal will dramatically reduce the international role of the US dollar.
Most of the IMF operations are carried out in dollars. Most IMF borrowers will ask for dollars and repay them in dollars. If the dollar does not come from a US commitment to the fund, other members will provide them from their reserves.
International demand for funding has declined by 5.6% over the past four years. If the US withdraws from the fund, that trend will accelerate. The dollar is then removed from the fund’s use, and which countries would like to hold assets in currencies that are not available in IMF transactions issued by the countries that have waived international financial liability?
Today, the IMF works primarily with the dollar, but has a multi-currency structure. Issuers of other major currencies, such as China and the EU, will be pleased that they inherit the special status of the dollar.
For example, consider the IMF special drawing rights, international reserve assets that supplement the member state’s reserves. Currently, the dollar has the largest weight (43%) in a basket of five currencies valuing the SDR. The largest currency is the euro, followed by Chinese, Japanese and British currencies. If the US withdraws from the IMF, you will need to remove the dollar from the SDR valuation as it can only include the member’s currency.
If the US abdicates IMF leadership, China is in a position to challenge Europeans with the biggest weight in the basket. They will likely acquire an imbalance in the current US share of the IMF voting rights and move simultaneously to move the fund’s headquarters to China.
By withdrawing from the IMF, the US will not only abandon its international prestige, but will also lose its channel to provide financial aid to countries it wants to support. Whatever critics think about the perceived flaws in policies promoted by the IMF, the US is no longer utilizing them.
The withdrawal from the IMF spells out the end of America’s position as a major reserve provider in other parts of the world. This says Stephen Milan, chairman of Trump’s Economic Advisory Council, would like to preserve it even if he wishes to pay other countries the right to use the dollar this way.
Most importantly, as China’s currency, the EU and small countries replaced the dollar with official international finance, it will also be replaced by private international finance. As a result, the privileged role of US financial institutions is undercut as they have direct and indirect priority access to dollar support from the Federal Reserve.
The fiscal control of the United States and its currency will be drastically reduced, and the effectiveness of US financial sanctions will likely be fatally weakened.
In short, withdrawal from the IMF will be an economic, financial and political blunder of enormous proportions.
