Zarmina Khan
The impact of emerging economies on global financial governance has been growing significantly in recent decades. Emerging economies (China, Brazil, India, etc.) are gradually shaping the global financial landscape, not only through economic growth but also through their growing participation in international financial institutions and governance frameworks. The shift in global economic power has been fuelled by the rapid growth of emerging economies and these emerging economies represent a substantial portion of global GDP.
Theoretical insight is crucial to understanding the shifting balance of power and the changing roles of emerging economies in shaping global financial governance.
World-systems theory provides a foundational perspective to analyse global economic structures and their influence on financial governance. According to world-systems theory, the world is divided into a core, semi-periphery, and periphery.
Factually, the core (e.g. U.S., UK, and Western Europe) has dominated global finance, while the periphery (emerging economies) has been economically dependent. As time passed, emerging economies have moved into the semi-peripheral zone, contesting the traditional dominance of the core.
For example, countries like China and India have begun shifting the global balance of power through rapid industrialization and notable economic growth. China’s economic rise has been revolutionary in this situation. China has formed a new set of economic interactions that confront the traditional Western dominated financial structure. Now emerging economies are moving away from peripheral roles toward semi-peripheral positions, pushing for a reformation of global financial institutions like the International Monetary Fund (IMF) and World Bank.
Dependency Theory
Dependency theory argues that the economic development of the global South (including emerging economies) has been historically shaped by its dependence on the industrialized north. In this case, emerging economies have been seen as underdeveloped and exploited, particularly in their interactions with financial institutions that reinforce unequal power structures.
However, recent tendencies show that emerging economies, particularly in Asia, are working to reduce this dependency. The creation of institutions such as the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) shows the determination to overcome the dependency created by Western-dominated financial institutions like the World Bank and the IMF.
The NDB was established in 2014 by the BRICS countries (Brazil, Russia, India, China, and South Africa) to promote infrastructure and sustainable development in emerging economies. Moreover, NDB is promoting a more diversified, inclusive, and equitable financial system. It empowers emerging economies to take a greater role in shaping the financial landscape. Thus, the New Development bank’s growing influence is an indication of the shift towards a more multipolar world where financial governance is progressively shaped by emerging economies.
The AIIB was founded in 2016. It is a significant multilateral financial institution aimed at fostering economic development in Asia by financing infrastructure projects. China, as the largest shareholder in the AIIB, plays a dominant role in shaping the bank’s policies and strategic direction. China’s strong involvement in AIIB reflects its broader geopolitical and economic ambitions in Asia and outside of Asia. India’s participation in AIIB reflects its growing economic influence in Asia and the need for substantial infrastructure investment to sustain its growth. Despite the geopolitical tensions with China, India has sustained its participation in the AIIB, considering it as an opportunity to secure funding for important infrastructure projects and promote regional connectivity. Brazil joined the AIIB as a non-regional member. Brazil’s participation is also a sign of the growing importance of multilateral development banks in addressing global infrastructure needs.
China’s role in the IMF Special Drawing Rights (SDR) basket is noteworthy because it reflects the growing influence of the Chinese economy in the global financial system. Moreover, China’s efforts to internationalize the renminbi (RMB) are examples of how emerging economies are seeking to redefine their position in the global financial order.
Geoeconomics
Geoeconomics focuses on the use of economic tools to attain geopolitical objectives. From this perspective, emerging economies are making greater use of their economic power not only to secure financial resources but also to shape global financial governance. For example, China’s Belt and Road Initiative (BRI) is a strategic economic instrument that integrates infrastructure development with political and economic influence. The BRI has allowed China to establish alternative financial structures and networks that directly challenge the dominance of traditional Western-led financial systems. The strategic use of economic power through initiatives like the BRI and AIIB reflects the principles of geoeconomics, where economic strategies are closely aligned with political goals. Emerging economies are using their economic growth and financial resources to gain geopolitical power and influence global financial governance.
Emerging economies are now intending to be the active players of global financial order rather than the passive ones. Their increased engagement in international institutions and the creation of new financial frameworks indicate a fundamental shift in global economic power.
