Origin

On January 20, 1930, at a Hague Convention, the governments of Germany, Belgium, France, the United Kingdom, Italy, Japan, and Switzerland created the BIS. The latter agreed to grant the Bank legal charter under Swiss law. Currently it is based in Basel, Switzerland and has representative offices in Hong Kong and Mexico City. The original founders included the central banks of the six signatory states plus three American private banks, J.P. Morgan and Company, the First National Bank of New York, and the First National Bank of Chicago.

Purpose

The Bank’s original purpose was to facilitate reparation payments imposed on Germany by the victorious powers at the 1919 Peace Treaty at the end of World War I. However, after the 1931 Hoover Moratorium on reparation payments and their subsequent suspension at the Lausanne Conference of 1932 in the midst of the Great Depression, it eventually shifted its focus to international financial stability and banking services for central banks. Attempts were made to abolish the Bank during the 1944 Bretton Woods Conference; the Roosevelt administration as well as the British, Norwegian, and Dutch delegations disliked the possibility that control of international finance might be outside the grasp of national policy-makers. However, European central banks valued the Bank’s non-governmental character and resisted its liquidation.

Structure

The Bank’s capital is held by central banks only; sixty-three central banks and monetary authorities are currently members of the BIS and have rights of voting and representation at General Meetings.

The Bank has three main decision-making organs: the Board of Directors, General Management, and General Meetings of Member State banks.

The Board of Directors, which meets at least six times a year, determines the strategic and policy direction of the BIS, supervises BIS Management, and fulfills the specific tasks given to it by the Bank’s Statutes. The Board may have up to 18 members, including six ex officio Directors comprising the central bank Governors of Belgium, France, Germany, Italy, the United Kingdom and the United States. Ex-officio Directors have a reserved seat simply because they’re representatives of the central banks of the aforementioned countries. They may jointly appoint one other member of the nationality of one of their central banks. Eleven Governors of other member central banks may be elected to the Board. Notably, no Governors from Asia, Latin America, Africa, or the Muslim world are ex officio Directors.

BIS Management is under the overall direction of the General Manager, who is responsible to the Board of Directors for the conduct of the Bank.

The Annual General Meeting (AGM) is held no later than four months after 31 March, the end of the BIS financial year. The AGM decides the distribution of the dividend and profit of the BIS, approves the annual report and the accounts of the Bank, makes adjustments in the allowances paid to Board members and selects the Bank’s independent auditor.

Extraordinary General Meetings must be called in order to amend the Statutes of the Bank, change its authorized capital or liquidate the Bank.

Financial Statements

The financial statements are prepared in accordance with the Statutes and accounting policies of the Bank. The BIS publishes audited annual financial statements as of 31 March each year in its Annual Report. The BIS balance sheet total was SDR 379 billion SDR as at 31 March 2024.

De Facto Sovereignty

The Bank has certain privileges and immunities that, in the aggregate, give it de facto sovereignty – beyond the reach of local and international law. Senior management of the BIS enjoys diplomatic status, and enjoys specific privileges that include: immunity from legal process (e.g., suits, arrests, imprisonment) in respect to acts performed in their official capacity, even after their service with BIS has ended; inviolability of premises and archives (the BIS’s premises and archives, including official papers, documents and data, are inviolable; and tax exemptions for their salaries and official goods (salaries and emoluments paid by the BIS are exempt from taxation and may also be exempt from taxes on capital payments and certain income from other sources). In addition, they have exemptions from customs duties, taxes on goods imported for official uses, and immigration restrictions, along with repatriation facilities in times of international crises. The BIS and its staff are exempt from social security and welfare legislation and contributions in the host countries.

The BIS has the freedom to act independently and to make its own rules and regulations within its premises. It has the freedom to hold meetings in France and other host countries, with no restrictions on discussion or decision-making. Its property and assets, and those entrusted to it, are immune from search, seizure, or expropriation.

Internal Power

At BIS, voting power is directly proportional to the number of shares subscribed by each member. Each member central bank or its designee has voting rights at the General Meetings equivalent to the number of shares they subscribed in their respective country. While the shares have identical property rights, the right to vote and be represented is reserved for the central bank of the country that subscribed the shares. This means that a member with more shares will have a proportionally larger say in the decisions made at the BIS. The BIS Statutes explicitly state that voting rights are “in proportion to the number of shares subscribed” by each member. This means that if one member has twice as many shares as another, they will have twice as many votes. While a precise individual breakdown of BIS shareholdings for each member bank isn’t publicly available, it’s known that 559,125 of the 600,000 shares were held by member central banks as of March 2019. These shares are not fungible, meaning they are linked to specific national issues (American, Belgian, and French). Two American banks own BIS shares: the Federal Reserve System and the Federal Reserve Bank of New York.

Evaluation

Although the Bank is Eurocentric (34 jurisdictions in Europe, 16 in Asia, 5 in South America, 3 in North America, 3 in Africa, and 2 in Oceania), its influence on the international monetary and financial system with policy-making and large cross-border banking is undeniable. However, the opacity of its motives came to the forefront in the context of facilitating multi-billion-dollar IMF bailouts in the 1990s, the true beneficiaries of which were alleged to have been US-based commercial bank creditors. In addition, major economies have the greatest clout within the Bank. The Bank also represents the apex of international standard formulation through practices that are shared or agreed upon informally by the network’s members. The insulation of the Bank and its hosted mechanisms from governments places them outside international law. This infers a distinctive preference for favoring the elite over what democratic majorities might choose. In turn, that raises questions on how to regulate and limit such informal authority.

Conclusion

The efficiency and proficiency of the BIS in executing the policies and procedures set forth by its decision-making organs are beyond criticism. It is not what it does but what it does not do that needs to be explored. A relic of the age of colonial empires and an enduring catalyst to all Industrial Revolutions, the Bank was created long before today’s defining terms such as climate change, semiconductors, computers, fiber optics, internet, jets, drones, space exploration, weapons of mass destruction, robotics, artificial intelligence, and their promising yet potentially nightmarish ramifications existed. Thus, evolving circumstances such as the need to abolish the use of fossil fuels – the main cause of anthropomorphic climate change – are not included among the Bank’s specific purposes. Furthermore, its system of allocating voting rights effectively insulates and preserves the interests of the global elite. In addition, having determined that the BIS is undeniably Euro-centric, that the six original ex-officio members cannot be replaced, and that its role in augmenting and preserving the world’s ruling financial system is of crucial importance, it can be reasonably concluded that its oligarchical design is not responsive to the needs, hopes and expectations of the vast majority of people in today’s emerging multi-polar world: to drastically reduce pervasive poverty and to disperse the dangerous concentration of wealth and power.