li ruogu : reform the governance of the imf speech by mr li ruogu, deputy governor of the people ’ s bank of china, on the seminar on governance of the bretton woods institutions, washington dc, 1 october 2004. * * * mr. chairman, ladies and gentlemen, it is my great pleasure to be invited by the annual meeting organizers to share with you my views on the governance issues of the bretton woods institutions, especially on the occasion of their 60th anniversary. i. the main problem of the governance of the imf and its negative implication as we all know, the imf was established sixty years ago as a global monetary cooperative institution, with the aim to help member countries adjust international balance of payments and stabilize exchange rate movement. the quota has been set as the key factor to determine voting powers and access to fund ’ s resources of member countries. when the fund was constituted, the quota distribution was decided by the political and economic situation at that time. due to this reason, the quota share of the u. s. was as high as 36 percent and that of uk 17 percent. obviously, few industrial countries dominated the fund ’ s governance in its very early days. nevertheless, to reflect the equity of member countries - though in a very limited way - each member country was assigned 250 basic votes in addition to its votes determined by quotas. and the basic votes accounted for 11. 3 percent of the total votes at the inception of the imf. the following decades have witnessed great changes in global political and economic environment, including emergence of many newly independent sovereign countries, collapse of the bretton woods system, the oil crises in the 1970s, the international debt crises in the 1980s, booming international private capital flows throughout most 1990s and subsequent capital account crises in several emerging markets in the late 1990s. the fund responded with expansion of its memberships from 40 to 184, augmentation of quota size by almost 37 folds and allocations of special drawing rights ( sdr ) between late 1960s and 1980s. however, these phenomenal developments haven ’ t been accompanied by fundamental improvement of the governance structure within the fund. the main problem of its governance is that the decision - making mechanism has not reflected the rapidly evolving political and economic environment and principles used for allocating quotas when the fund was established has been abandoned resulting in a small group of member countries easily forming majority votes and exercising veto powers. thus, the imf doesn ’ t belong to its majority members

use of funds raised from green financial bonds in the interbank market is now required to be disclosed on a quarterly basis. financial institutions are also required to report the use and allocation of green loans. going forward, the pbc plans to develop a mandatory disclosure system that would require all financial institutions and firms to follow uniform disclosure standards. third, we will incorporate climate change into the policy framework. the pbc is looking at the possibility of including climate change factors in the stress test of financial institutions. we are also exploring the role of monetary policy in encouraging financial institutions to support carbon emission reduction. in foreign exchange reserve investment, we will further increase the share of green bonds, limit investment in carbon - intensive assets, and incorporate climate risk factors into our risk management framework. fourth, we will encourage financial institutions to proactively deal with the climate change risk. a lot of financial institutions are already on the move. in china, the icbc has included the environmental risk compliance in its investment and financing management, while the bank of china is studying environmental risk stress test. the first batch of carbon - neutral bonds has recently been issued in china ’ s interbank market. the funds raised will be used specifically to finance clean energy and carbon - reduction projects. we are asking some pilot financial institutions to measure the carbon emission and climate risks of their projects. we are making quarterly green credit assessment of our banks, and are planning to extend such assessment to cover more financial institutions beyond the banks. fifth, we will deepen international cooperation. the pbc initiated and co - chaired the sustainable finance study group during china ’ s g20 presidency in 2016. the study group contributed to building international consensus on green finance. resumed under the italian g20 presidency this year, the study group is now co - chaired by the pbc and the us treasury. we will enhance coordination with all g20 members when discussing the roadmap for promoting sustainable finance, information disclosure, and the taxonomy of green finance. meanwhile, the pbc will continue to deepen cooperation under the network for greening the financial system ( ngfs ), the international platform on sustainable finance ( ipsf ) and other multilateral frameworks. we will continue to assist the developing countries in capacity building to support their green transition and response to climate change. in a nutshell, the financial system can play a key role in supporting green transition and managing climate - related risks. going forward, the pbc will continue to support green and high - quality