Thursday, 24 July 2025
On this week’s episode of Macro Matters, BWC Executive Director Emily Slater is joined by Nancy Jacklin to discuss whether the global economic architecture and the Bretton Woods institutions are equipped for today’s global economy. Nancy is a former U.S. Executive Director of the International Monetary Fund. She served as Assistant General Counsel for the Federal Reserve Board of governors and an attorney at the US Treasury. She was a Partner at Clifford Chance, LLP where she was an advisor on international finance and financial regulation issues.
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Transcript
Slater: Welcome to Macro Matters, a podcast where global experts offer clear-eyed analysis on global economic policy. I’m your host, Emily Slater, Executive Director of the Breton Woods Committee. Each episode, I sit down with BWC’s diverse network of members, from global policymakers to private sector leaders, to discuss timely topics in economics, geopolitics, and finance. In a media landscape full of noise, these conversations offer clarity. We go beyond the headlines to explore not just what’s happening in the global economy, but why it’s happening, what it means, and what might come next.
Welcome to today’s episode. Delighted to have our guest here today. And the question that we’re asking in today’s episode is how well has the global economic architecture aged? Is it a fine wine or is it vinegar? We’re gonna dive into some of these questions and some of the critiques of the economic system that are making headlines. and, you know, this system was really designed, of course, back in 1944 in Breton Woods, New Hampshire, to really promote growth, stability, cooperation and address some of the root causes of World War 1, World War 2. And for many, many decades it did that, right? It produced the most prosperous period in history. But last several decades we’ve seen some cracks in the architecture. Global growth has slowed, inequality has risen. There’s been many shocks to the system. And so we’re really seeing this international order being tested. And some of those most vocal critiques have recently come from the U.S. who sort of not only questioning the system as a whole as it was designed but really the rules and the fairness of the system and the institutions that comprise it and whether they’re really still fit for purpose.
Those are some of the questions that are before us today that we’re going to dive into. And we’re very fortunate to have with us Miss Nancy Jacklin, who’s gonna help unpack some of this and couldn’t think of someone better to address this. Nancy, I mean, a long time career, veteran of the US government, both the Federal Reserve and the U.S. Treasury. Also served as the executive director at the IMF on their board of directors. So you have first hand experience into policy making, into cooperation and negotiations with other governments. And we’re very delighted to have you here today to help us try to make sense of some of these shifts that are going on. And I should say, Nancy also hosted a podcast for the Bretton Woods Committee called Brettonomics, so encourage everyone to listen to those episodes if you have not already. And happy to have you on this side of the table today Nancy as a guest.
Jacklin: Well, thank you, Emily. It’s just, it’s a strange chair I’m sitting in after all those podcasts on the other side. But let me see, before we talk about how people are criticizing this current system, let’s kind of talk about what it is and why it is the way it is. So the sense was in 1944 that you were going to end up with a bigger economic pie for everybody if you had basically free and fair trading system, really a market based system, and you had exchange rates that weren’t being manipulated but were basically being fairly established. The economic principle behind that was this theory of comparative advantage that if every country produced goods and services where it was, could do it most effectively and most efficiently, and then countries traded with each other, you would end up with the optimum outcome. It would benefit everybody. The problem with the theory is that at its heart, that’s how free markets operate. And there are some outcomes to that operation that not, may not be wholly acceptable. So for example, you can end up with a freely competitive system with having supply concentrations and shortages. And we’ve seen that in the US domestic economy. I mean, who knew that infant formula was only produced by one company in North Carolina before that hurricane hit? Right? We’ve seen it internationally with Covid, and we’ve seen it with the Ukraine hostilities and the interference with wheat and fertilizer exports. So you can have that sort of unacceptable outcome of having one producer dominate in any particular product. And that can happen with, as I said, agricultural goods or industrial goods. The other thing that can go wrong is that competition. Free markets by their nature involve essentially creative destruction, right? That there’s a better product, there’s technology improvements, there’s higher quality somewhere else. Producers can go out of business or their, their piece of the market can shrink. And that affects those businesses and also affects the employees of those businesses. And what we found in most free-market systems is that the governments are not particularly good at figuring out how you help companies and individuals deal with that transition to getting back on their feet and having some worthwhile employment.
So that’s kind of the theory. Now the theory has met political reality. And so in the international system, it is not purely free trade. There are quota and non quota barriers that are permitted in their particular categories of exceptions, that you can fit into. And it’s everything from health and safety regulations, you know, we have capital markets and banking regulations, we have national security exceptions. There are some exceptions for essential products. I mean the U.S. has tons of agricultural subsidies, right?
Slater: It accounts for more than the foreign assistance budget.
Jacklin: And they’re not illegal. We had with developing countries infant industry exceptions. So it was never a purely market driven system. Nonetheless, there are rules as to what’s regarded as appropriate or inappropriate behavior. And if you are violating those rules, then the countries that are injured have a right to retaliate and there are again sort of accepted measures of retaliation. And that’s sort of how the rules are supposed to work. Now what’s happened is that the more a country’s own economic system departs from a free market model, the more their government policies can have a distorting effect. So one of the biggest examples out there of unfair trade that we keep hearing about is Chinese overproduction of things like electric vehicles where they’re making far more than their domestic economy will consume. And that excess is effectively getting sold at below market prices in international markets. And that is making other countries unable to compete, totally unable to compete. This isn’t a new thing. Dumping. It’s happened before, there were problems with the Europeans dumping excess agricultural products. But given the size of China and the size of the problem, the complaints are getting very loud.
So the Trump administration basically has yelled stop the music, right? The system ain’t fair, and we are getting disadvantaged and we don’t like it. The complaints are kind of twofold. There are many, but I talk about the two dominant ones that really got some traction at the G7 finance ministers meeting a month or so ago. And one was the concern about supply chain concentrations that we’re getting. The competition is getting to the point where people don’t have secure supplies of essential goods that they need. And that has really gotten some general traction. This was raised even during the Biden administration that everybody realized after Covid, we got a problem and we need to find a way to fix it. The second complaint is that the international competition has essentially hollowed out the US industrial sector. And it hasn’t done it just because of fair competition and sort of the normal creative destruction, right? It’s happened because of unfair practices. And so that is sort of the second complaint. So we now have the U.S. and all of its trading partners, lots of them, scrambling around trying to negotiate deals.
Slater: Frameworks, right?
Jacklin: Well, frameworks. They were they’re supposed to be getting to deals eventually. And so there’s a effort at least to deal with what are the biggest grievances on both sides. And we’ll kind of see, this is July 1st. We should be knowing more in a week or 10 days of kind of how this process is going.
Slater: Expecting a handful of new frameworks to be announced.
Jacklin: Well, that’s right. So we’ll see. Now in addition to unfair trading practices, the other big beef that the U.S. has is with the buildup of substantial and sustained balance of payment surpluses by other countries due to their fiscal, monetary, and exchange rate policies, and their unwillingness to pursue policies that create adjustments more balance in the way their economies are run. And the principal beef, of course, is about China and its longstanding model of export driven growth. So what happens is if the government incentives and subsidies and policies are trying to push the growth in the Chinese economy to the export sector at the expense of other sectors like consumer goods and services for domestic consumption, that leads to a build up of surpluses in the external account, which then has enormous spillover effects on other countries and the system as a whole. There is also, of course, the U.S. that has sort of, in a way, the counterpart very large balance of payments deficit. And those can be attributed both to US fiscal policy, but also the way the international trading system is working.
As far as I can remember, and I’d say from the beginning of time, one of the big issues in the international monetary and financial system is how to deal with large imbalances and to get symmetrical adjustment by surplus in deficit countries. Historically, it has always been hardest to get surplus countries to make the adjustments, cause after all, they are the ones who are advantage.
Slater: They don’t have the incentive.
Jacklin: Yeah, they don’t have the incentive to do so. So what’s happening now is this is nothing new, but because the imbalances are larger and have gone on for longer the need for change has, kind of, those pressures have built up and there is a real desire that something be done. Now the U.S. has a third complaint about the system and that is that it produces an overvalued dollar. And the way we get there is because the US dollar is the principal currency in international trade and it is the principal reserve currency. So there is demand for the dollar that is greater than what might be there just based on its own trading and investment position in the global system. And this ends up creating winners and losers in the US economy, too. Right? So if you have an overvalued dollar, it means exporters are disadvantaged because the prices of their goods and international markets is higher. It means that importers of goods and services have lower prices, which is good. Consumers have lower prices and the inflation is at lower rate than it might otherwise be because you don’t have a cheap dollar driving up prices. The problem is, apart from how this plays out in terms of the US external balance, you are effectively distorting what would happen if you had otherwise balance in a fair value for the US dollar. So you’re causing distortions in the US economy. Now the U.S. complains, but the reality as of today anyway, is that to the degree the dollar’s over valuation is due to manipulative policies by other governments either intervening in exchange markets to make their currency cheaper or due to their macroeconomic policies. The U.S. Treasury’s most recent report on foreign exchange policies of other countries that came out in June did not find any so called currency manipulators. And, and manipulation is really the biggest concern the US has.
Slater: For decades, right?
Jacklin: For decades.
Slater: Since we went off the gold standard.
Jacklin: Well, that’s right. So we, I mean, we’ve had these reports issued for quite a number of years right. The other thing that’s interesting about the so called overvaluation of the dollar is that it has dropped more than 10% this year alone. And that is a pretty huge adjustment. There’s never been an adjustment that big in this time frame, I think I read today since 1973. So where the U.S. goes with those complaints, the currency complaints is yet to be, yet to be seen.
Slater: There are some proposals that are starting to bubble up, right? In terms of the new Mar-a-Lago accord.
Jacklin: Well, we can, we’ll talk about that maybe that’s another episode. So that is kind of what my best assessment given all this fog and chaos of what’s going on. And you had G7 finance ministers agreeing to the problem of supply chain interruptions in the need to have more resilient supply chains and the issue of external imbalances and trying to deal with that. So as to those two things, I think we have at least the beginning of a consensus.
Slater: Recognition?
Jacklin: Or at least a recognition that we need to grapple with those problems.
Slater: So Nancy, you know, we’re talking about some trade issues some of these sort of imbalances, that you’ve discussed and really a system that has been based on free market principles, but not really ever free market, right? And so kind of where we’re at now is the system has maybe really been stretched and tested almost to its limit and to a tipping point perhaps. And now the U.S. is taking some, you know, maybe rather aggressive actions to address some of the failures or problems, I should say, of the system. But we have institutions that were designed to really monitor and shepherd the system so that the rules that were agreed upon would be followed, right? Those institutions are the IMF, the World Bank, the World Trade Organization. So kind of how much of what we’re seeing now in terms of some of these cracks can be attributed to maybe these institutions and a lack of enforcement mechanisms that are built into them, right? Because the system is voluntary, right? There’s really not, someone who is really refereeing the system, right? It’s kind of countries have to act in good faith and are supposed to play by the rules kind of in good faith. So how much can we attribute some of the failures to the institutions themselves, or is institutional design a factor, I think in any of the issues that we’re seeing? And then where are we supposed to address some of these grievances, right? Is it G7? Is it G20? Is it within IMF, World Bank, WTO itself?
Jacklin: Okay, okay, so institutional. For some time, the WTO has been losing traction. And there have been, I guess, two agreed major shortcomings. One is it’s an institution where trade agreements and therefore kind of the rules governing trade were based on unanimity of the membership, unlike the IMF and the World Bank, where you have majority votes may be weighted voting by economic and other factors, but you have the ability to move ahead without every single country agreeing. So that has kind of stopped the old world of these GATT agreements that were universal in a sense then. And so coming to agreements on rules for new things like digital products and technology and all of that is harder because you have a system that just isn’t going to work. The second thing shortcoming with a WTO was that they are an appellate body which was supposed to resolve trade disputes between countries, basically was not functioning satisfactorily for a lot of members. And the, and the U.S. was particularly upset including with some of their rulings on what the national security exception, concurrent stuff and so we really haven’t had a functioning appellate body for quite a number of years now. In my view, the current impasse is not due to the shortcomings of the WTO. It’s a matter of getting political agreement on what is wrong with the current system, what isn’t working, and how you go about fixing it. And so what I certainly hope in all this scrambling that’s going on in terms of bilateral deal making that the countries involve look to create outcomes that might provide the basis for a framework for long term rules that everybody agrees on. Because if we don’t have more certainty and we don’t have predictability in international trade relations, it’s going to be very hard for market participants, whether it’s businesses or consumers to plan. And if you don’t have some predictability, it is very hard to have long term growth. So that’s sort of issue number 1 on the trade side.
Slater: So take the crisis as an opportunity?
Jacklin: So take the crisis as an opportunity and try to make it work for the long haul.
Slater: So we don’t get back here, again.
Jacklin: Right, right. I know everybody wants everything done fast, but at least look at what can we do fast, and then what, what do we have to continue to chip away at and really get some agreement. The second thing is on the external imbalances and exchange rates. As I said, those issues have been long standing issues in the international monetary and financial system and go to the heart of the IMF’s core function and that is to oversee members obligations under what’s called Article 4 of the IMF Charter. And in that, the members are supposed to pursue fiscal, monetary, exchange rate policies, which do not give them an unfair competitive advantage in the system as a whole. And your domestic policies are supposed to be meeting domestic goals and you’re not supposed to be implementing domestic policies, domestic economic policies or your foreign exchange rate policies to basically outcompete others in the international system. So we have the obligations. We’ve got the IMF doing annual surveillance of country’s policies, we have them doing multilateral surveillance now both regional and global. We have them issuing reports that say what members need to do. But we don’t have in the current world where one dominant player has a non market system with export driven growth, a real clear-eyed view of what that means for the country and what it means for the system as a whole and what they’re doing that’s consistent with IMF obligations or inconsistent with IMF obligations.
So from what I could see in the G7 finance ministers communique, there is an understanding that you need to take a closer look at sort of non market policies and practices and have a better view on how the new world is supposed to work. People don’t have to all have free market systems and we don’t. I mean, the U.S. has industrial policies. I mean, no country does, but there are ranges. And there have to be some rules that can work for all these different models where the pieces fit together in a fair, a fair mutually advantageous way. So the IMF’s got to be at the center of that because of its core function. I think the issues that people have now is whether the IMF has been straying a little bit too far from that as the core function and doing a bunch of other things that maybe are not as critical that it needs to grapple with this market, nonmarket model a little bit more front and center. And you do have the IMF with an upcoming review of its surveillance policies and practices. The last one was in 2001. And that is really an opportunity to come to grips with these issues, and they need to make it a priority.
The other issue with the fund and surveillance role is, is how does it get traction? So what happens today is the IMF issues their report. They may criticize a country. They have been trying to get the Chinese government to change its growth model to not be so driven by exports but to increase its domestic consumption. And that was going on probably even before I was at the IMF in 2002, but that’s certainly what the report said then. Now 20 some years is a very long time. These are a lot of decades of criticism with the peers agreeing with the IMF, this has to be done. Well, this hasn’t quite produced the outcome we want. Right? So I think what we’ll talk a little bit about, you know, what can be done to try to improve that. And one thing that countries have typically not done is linked their goals in one area with their goals in other areas. And so there has not been sort of policy coordinated peer pressure in terms of each country saying, well, what levers do we have to exercise some influence on, on these policies to reinforce the IMF’s message? And what can we do alone and what can we do on a concerted basis? And that’s a very hard nut to crack. And it’s one that I think needs to be addressed because if we’re going to give IMF surveillance some meaning, we’ve got to be able to get some favorable outcomes. And the IMF certainly with loans, has conditionality. And though that conditionality is voluntary, it gives the IMF the fact that they can withhold money a very strong lever. They don’t have that lever in the surveillance area and so the members have to provide it. And so how do they do that?
Now one thing we’re seeing is in the Trump administration’s blowing the whistle and saying time out is that they are linking almost everything. Yeah, I mean, they’re linking their security relations, their defense stuff with countries, their trade, this economic macro policy concerns. It’s all kind of being thrown into one massive list of grievances or rights and obligations and whether that has sufficient focus and collective buy in to make it work, yeah, in the international context, right? I’ve got some doubts. But the fact that there are sources of other pressures that can be brought to try to reinforce the IMF’s message is one that I think we gotta pay, we gotta pay attention to.
Now, the other thing the IMF needs to do in this world and that it is fit to do and again, what we’re looking at with the IMF is not massive reform or massive change. It’s a little, it’s kind of course correction as some have called it. But in this, this era of kind of turbulence as to what the new rules are going to be or how they’re going to get implemented, every country is going to be affected by these shifting sands. You can’t have the world sort of changing this much and not have every single country affected in terms of their economic, their own economic performance so the IMF’s clearly going toa have a big role going forward, both in providing financial support to countries that are having difficulty adapting and adjusting and also policy support and advice. And that’s not just going to be helpful to the countries that are hit by the stuff by collateral damage, but you’ve got some fundamental changes going on in Europe in terms of increased defense spending and greater integration both of their financial markets and their economies. And those are all issues that are, you know, are part of the surveillance function of the IMF.
So I think try to restore clarity and stability to the system is really necessary. It’s not going to be quick, it’s not going to be easy, but really it’s essential if we’re going to expect global economic growth.
Slater: Yeah. So you’ve talked a little bit about sort of some of the institutional reform that needs to happen. I mean, maybe at the IMF not wholesale changes, right? A little bit of dealing with some of the imbalances, giving advice, technical assistance to countries to kind of deal with the so called shock that they’re experiencing right now. On the WTO, probably a bigger lift, right? I mean that really needs to be rethought, I think.
Jacklin: Well, that and it’s a very long term challenge, right.
Slater: But really probably a little bit more of an overhaul there, right?
Jacklin: Yeah.
Slater: Many people have sort of said that some of the actions that are being taken by the current US administration to address these problems in the system are really impacting the global system going forward and forever, will have disrupted it and reshaped it forever, right?
Jacklin: There are going to be different trading patterns. That in a minimum is going to change.
Slater: And the global order, I mean, as you mentioned on the defense side, right, and so right now, there’s a lot of uncertainty about what this all means and I can’t begin to forecast where we go from here or really how we make sense of this. But I think you put your finger on something that’s really interesting that we’re seeing from the administration, which is this more comprehensive approach where they are sort of packaging together macroeconomic defense trade, in their, in their relationships and their bilateral relationships with other countries, and kind of to be seen on how that plays out. I can kind of see on a bilateral basis how you could do that. I think you said in the multilateral system, in the international order, that gets a little bit trickier. So where do we go from here, Nancy? Both in terms of the architecture as a whole, some of the institutions which we’ve touched on a little bit, but also just kind of the fundamental ideal that the Bretton Woods system was based on, which is cooperation.
Jacklin: Yeah, I think in order to rebuild it, you gotta have a few wins. So I think there’s got to be an effort on the several issues that at least the G7 finance ministers agree to, which is how do we create rules on what we can properly do to deal with supply chain concentration? What is appropriate for every country to have their own economic resilience and security. If we can start to make some sense on that and you do it kind of one step at a time, you start to and you may build out from smaller groups to bigger groups, but start to have a few wins on cooperation and start to build confidence of people that well, we can get back there.
Slater: Start with G7?
Jacklin: And I think you start with a G7, and then the G7 starts to build out to the G20. A lot of this I think is, is more on the trade side. And so as I said, as you’re negotiating these trade agreements, I hope people are thinking about let’s build this as a framework that we want more countries to sign on to, right? That we’re not just doing opportunistic ad hoc deals, right? I think it’s got to be one step at a time building it back. You’re not gonna be able to leap into full fledged multilateral cooperation and think it’s, it’s just suddenly gonna be there cause too many people are, are scrambling now.
Slater: And are disillusioned, right?
Jacklin: Are disillusioned and scrambling to figure out how they survive. What’s their next step? How do they protect their own country? So there’s a lot of inward-looking stuff and it’s going to take some building of confidence through steps working back. And the other one is, I think if you can get some agreement on what you do about, the distortions that are coming from nonmarket practices on external imbalances generally and some better adjustment. The U.S. needs to confront its deficit and has said it will. The secretary of the Treasury has said it will. We haven’t seen that yet. What’s going on in Congress doesn’t give us a lot, doesn’t give us a lot of confidence of that yeah but I think you gotta have the principal economies in the world getting into better balance and that’s gonna take a little bit of time, but we’ll see. One of my big issues about China is they’re now talking the talk, right? They’re saying they want to increase consumption. They’re beginning to take little measures, but what I don’t understand is what does increase consumption in terms of Chinese characteristics look like. They obviously don’t want a consumer driven economy like the United States, and they don’t believe in a deep social safety net like Europe for various reasons. I mean, in a sense, they have almost the same attitude as our politicians who want more work requirements in the safety net, right? And so I think that the dialogue with China has to be, well, you know, how do you think you’re going to get there? Work with the IMF on trying to come up with something that works for you, but you gotta find a way to get more balance in the economy.
Slater: Yeah, yeah, I mean, and to your point about you know, talking the talk, like you said earlier, we’ve been talking about this for decades, right? I think China’s been talking the talk a bit for decades.
Jacklin: It’s now show me the money.
Slater: And now it’s kind of the U.S. has kind of gotten fed up with the talk and is saying you need to walk the walk, right? But also as you said, equally as fair for China, Europe, and other economies to say, U.S., you also need to walk the walk on the deficit issue because that is also problematic in looking at the whole system.
Jacklin: And that’s a big factor, and are external deficits. So that’s where I am, I live in hope, but the reality is unless you want sort of a global decline in growth, you need to find a way to get more stability back in the system and more cooperation.
Slater: Right, because the consequences of inaction hurt everybody. Final question, Nancy. You kind of outlined a building blocks approach here to the world re-engaging in multilateralism and a new international order. But, we’ve heard several times in the past and maybe some musings from this current administration that what we really need is another Bretton Woods, right? A 2. 0. Another sit down, hash it out, look at all of the different aspects that we’ve talked about economic, trade, defense, right, and really sort of renegotiate and reconcile what the rules of the international order are. I’m very skeptical of that ever happening given current geopolitical and political realities. And that seems to be sort of the alternative approach to the building block one. Any merit in that approach or any reality.
Jacklin: Well, perpetual meetings are not anything anybody wants to sit through, particularly not this administration. They’re not into perpetual meetings. And I think that if you start to have practical negotiations that produce some results that shows people can talk to each other. I don’t see how you get a massive redesign of the system. And I, frankly, I’m not sure anybody knows what they want it to look like, anyway. And you got all of these, you know, geopolitical pressures that are out there right now that are, that are going to redesign the way the world looks, too. The economy in the Middle East is gonna look different 10 years from now than it does today. And then we’ll see what happens with China and the Asian economies that have been dependent on its export driven model. So that’s gonna have effects and Europe is changing in a very big way. And the U.S., this administration is trying to change with the US economy looks like. All I can say is be adaptable, be flexible, and be glad that you’ve got the IMF and that you got its financing capability and make sure it’s adequate because change creates dislocations.
I mean, the other thing that countries really need to take a hard look at in today’s changing world is to do a better job at how you help the dislocated. And not in terms of handouts necessarily, but what’s the framework for transition for people? They’ve got to learn new skills and they have to move new places. They need to have some kind of bridging support of the community. How do you help people deal with a rapidly changing world, whether it’s AI or it’s international competition.
Slater: Absolutely. And as you said, governments haven’t, worldwide, have not been great at doing that.
Jacklin: All those programs, those programs of trade support for individuals don’t work.
Slater: Yeah, well Nancy we have covered a lot of ground, a lot of ground. I think they need you back in government advising them.
Jacklin: It’s very comfortable being able to watch from the outside and not be responsible for the outcome.
Slater: Exactly. Thank you so much for coming on the episode. I think we have provided a lot of food for thought on kind of trying to make sense as you said, looking through, trying to sort through all of it and kind of make sense of what some of the goals are here. Both from a US perspective and from a global perspective, how do we really get back on track?
Jacklin: Yeah, we need some wins.
Slater: We need some wins. Well thank you again Nancy for coming on.