US President Joe Biden recently nominated Ajaypal Singh Banga or Ajay Banga as the 14th President of the World Bank. The media went abuzz as a person of Indian origin was chosen to head a global organisation. In fact, of the previous thirteen Presidents of the World Bank, 10 were American citizens, and the other three were Australian-American, South Korean-American, and Bulgarian. In this sense, it is quite notable to see a person of Indian origin nominated for the Presidency of the World Bank.
What is really interesting is that this is the second time Banga has been called to head an international organisation whose future is not just uncertain but is also fighting for relevance. The first such organisation was Mastercard, the leading global payments and technology company. Banga was appointed as the President and CEO of Mastercard in 2010, a position he held till 2021. When Banga was appointed, Mastercard had just one rival: Visa, also a global payments company. When Banga left Mastercard, there were not just multiple players but also some other concerns.
The global payments industry has been dominated by Visa and Mastercard for some decades now. The two giants led the payments revolution by innovating in the space of debit and credit cards. Most banks in the world offer debit and credit cards on either of the two platforms. Hence, the competition was between these two players, and one saw games of strategies and one-upmanship, with Visa usually winning battles and leading the markets. In the middle of 2010s, we saw the emergence of two players in the payments space. These new players not just threatened to reduce the market share of the duopoly but also make these companies irrelevant!
New Challengers
First, a payment system driven by QR (Quick Response) codes, which required a person to just scan a code on their smartphone and pay from different wallets. QR codes enable payments from a bank seamlessly without the need for any Visa/Mastercard-enabled cards. India was a pioneer of the QR-based system and it has been adopted by multiple economies, both developed (Singapore, Germany, UK etc.) and emerging (China, Vietnam, Philippines etc.). These payments systems are not just limited to domestic boundaries. A few South Asian economies - Indonesia, Malaysia and Thailand - have adopted a common QR-based payment system. India and Singapore have also recently announced linking their QR-based systems.
The second is central bank digital currencies (CBDCs). They enable digital payments in central bank-issued money, which is even safer than the QR-based system. Central banks worldwide are at different stages of implementation of their CBDC projects. Few have already circulated CBDCs (Bahamas Islands, Nigeria), while countries such as India and China are conducting pilot experiments, and others such as the Euro area, the UK and the US are still working on it. Experiments are also underway to enable CBDCs transactions across borders.
Banga oversaw Mastercard amidst these interesting and challenging times for the payments industry. As both payment systems are run or promoted by their respective central banks, the duopolists face competition from governments. The Indian government had also launched a Rupay-based system that competed directly with Visa and Mastercard. Who could have thought that the government, seen as a laggard in technological innovation, could upset large global payment players?
On Familiar Ground
In an interesting parallel, Banga has been nominated to head World Bank, a major global financial institution that is also struggling. Also, we have a kind of duopoly here, as apart from the World Bank, there is the International Monetary Fund (IMF). Although the World Bank and IMF do not compete like Visa and Mastercard, they are duopolies in their dominance over global finance and economics. This dominance has declined over the years. In another parallel, Banga will head the lesser of the two institutions, as the IMF is still seen as important compared to the World Bank. Banga would have least imagined that he would be in a near similar position so quickly after leaving Mastercard!
Both the IMF and World Bank were created in the famous Bretton Woods Conference held in 1944 amidst the Second World War. Both institutions, like Mastercard and Visa, are based in the US and thus under US dominance. There is an understanding between the US and Europe that World Bank leadership is nominated by the US and IMF leadership by Europe.
The purpose of the IMF was to provide assistance to countries facing a financial crisis. There was a time when the IMF’s relevance was being questioned as there were very few crises. Post-2008 global financial crisis, financial crises became a norm putting a spotlight on the IMF. The purpose of the World Bank (it was called the International Bank for Reconstruction and Development earlier) was to provide loans and aid for building the world economy damaged by the war. The World Bank, after aiding in building Europe, shifted its attention towards developing and underdeveloped economies. The World Bank provides loans across the world for poverty reduction, development of infrastructure and so on. However, with the rise of global finance, the World Bank has faced competition from global financial firms. Countries which relied extensively on World Bank have more options now: loans from global banks, issuing bonds in global markets, etc. Countries such as China also provide loans and financial assistance to Asian and African countries to counter the dominance of the US and US-backed institutions. Both the World Bank and the IMF are also seen as handmaidens of the US government. The BRICS economies developed a new financial institution named New Development Bank to counter the US hegemony.
Ajay Banga has been nominated to preside over the World Bank in trying times. Banga’s nomination is also being criticised as he is seen as someone who is close to Wall Street and global finance. His nomination also comes at a time when nearly one-third to two-thirds of the world economy is undergoing a recession.
There are questions about the continued dominance of developed countries over global financial institutions such as the World Bank. There will be a spotlight on Banga on whether he can tilt the governance of these institutions towards emerging and developing economies. Though World Bank is a very different setting, his experience at Mastercard should be useful. He could not really prevent the decline of Mastercard as technology has been pervasive, whether he could prevent a decline and revive World Bank has to be seen.
Amol Agrawal is faculty at Ahmedabad University. Views are personal and do not represent the stand of this publication.
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