The International Monetary Fund meeting had agreed to a revolutionary change in its responsibilities. Instead of seeing lending as its central purpose, a strategy that had become both economically dubious and politically controversial, the IMF was to return to its fundamental purpose as a watchdog and guarantor of stability in the global economy.

"Surveillance" is the new watchword. It means the IMF will have the right, with full international agreement, to monitor and pass judgments and issue warnings and require consultation and to knock heads together.

"We resolved to make the IMF more fit for purpose in a global economy, and more able to address challenges that are quite different from those of 1945 when the IMF was created," said Britain's Chancellor of the Exchequer Gordon Brown, chairman of the IMF's monetary and financial committee.

In the current context, this means that the IMF will have to confront head-on the alarming spread of global imbalances, from the monstrous budget and current account deficits of the United States, to the parallel current account surpluses being piled up in Asia, and particularly in China.

Whether the IMF will have the clout to make something of its new responsibilities and to use its power of persuasion to change the bad habits of some of its most powerful member governments is an open question. But as the doctors say, recognizing the symptoms and correctly diagnosing the ailment is at least half the battle.

And it is clear that the IMF's current leaders have correctly diagnosed its own sickness. Sir Mervyn King spelled out part of the problem in a Feb. 20 speech titled "Do We Need the IMF?" when he warned that the IMF "could slip into obscurity" unless some dramatic reforms were made, starting with the unwieldy duties and lethargic work of its 24-member Executive Board.

Citing his own burden, King revealed that he and every other board member was overwhelmed by the 80,000 pages of reading the IMF sent him each year -- more than 300 pages every working day. This was not simply unmanageable, he warned, it was also a symptom of the way in which the board was trying to micro-manage the IMF rather than letting Managing Director Rodrigo de Rato get on with the job.

Moreover, the full IMF meetings attended by 180 members would discuss or achieve little, and the other institutions of global financial governance like the G7 were no longer reflecting the current global financial realities. When the G7 had last discussed the financial imbalances and their threat to financial stability, King recalled, "As we looked around the table, it was obvious that some of the key players, including China and India, were not present."

Other critics of the IMF have been even harsher. Edwin Truman, former U.S. Treasury official and former member of the Federal Reserve Board who is now at the Institute for International Economics in Washington, D.C., says "The IMF faces an identity crisis. It's lost its way as a multilateral institution."

The new model IMF will seek to act as analyst, watchdog and steward for the global economy, bringing together ad hoc groups of key financial players, finance ministers and central bankers, to reach consensus and agree upon cooperative solutions. Much as the G7 in the 1980s managed the orderly decline in the dollar with the Louvre and Plaza agreements, the IMF will seek to manage the current looming crisis.

In reality, this means persuading the United States to let the dollar fall, while the Chinese and other Asian economies (and the oil-rich countries like Russia and the OPEC nations) let their currencies rise, while the Europeans bring in their own reforms to boost their lackluster growth rates and resolve their own problem of Germany's swollen current account surplus.

China has already warned that this will not be easy. Zhou Xiaochuan, governor of the Peoples Bank of China, made it clear that China is not prepared to cooperate if the new IMF sees its priority as fixing currency rates.

"If surveillance is wrongly focused on an evaluation of the exchange rate level," he said Sunday, "it will hardly be objective and will certainly miss more fundamental issues."

He is partly right. It makes little sense to address the global imbalances purely through currency reform when U.S. consumers have simply stopped saving, and when the United States currently absorbs some 80 percent of the savings of the rest of the world. And the global economy is very different these days, being very much larger than the sum of its national parts. Back in 1983, the overseas assets and liabilities of industrial countries amounted to 70 percent of their combined GDP; twenty years later, according to IMF calculations, they amounted to 250 percent of their much larger combined GDP.

The political problem remains unchanged. John Snow, the U.S. Treasury Secretary, went along with this new model IMF because he sees it as a way to get the Asian currencies revalued. The Chinese went along because it finally gives them a seat at the top table where they will be able to tell the Americans to focus on the real problem -- to fix the U.S. savings rates and budget deficits. The Europeans went along because it gives them the prospect of continued influence beyond the real weight of their individual national economies.

At least the IMF now has a roadmap back to relevance, if the various national governments can agree to take it. And something needed to be done to replace the G7, which has lost much of its importance since it fixed the dollar imbalances of the 1980s. A recent report by PwC (formerly Price Waterhouse Coopers) claimed that by 2050, the combined GDP of the G7 nations (the United States, Japan, Britain, France, Germany, Italy and Canada) would be smaller than the combined GDP of the E7, the emerging economies of China, India, Russia, Brazil, Indonesia, Mexico and Turkey. By then, the reformed IMF will either have proved its usefulness, or disappeared.

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