If you believe the hype in today's Guardian and FT, leading governments achieved "a breakthrough in the governance of the global economy" over the weekend, transforming the International Monetary Fund into a "world economic watchdog". Larry Elliott's ebullience can be explained by his closeness to Gordon Brown, who happens to chair the IMF's key policy-making committee, while the FT is adopting an increasingly tabloid style to sex up its financial coverage. But in fact, what was decided at the weekend was pretty modest.

The IMF was set up in 1944 to oversee exchange rates and help countries smooth their trade imbalances. But since the demise of the Bretton Woods system of fixed exchange rates in the early 70s, its main role has been as a lender of last resort to governments that have no one else to turn to in a crisis. The fund has had little to do recently, however, because financial markets have been relatively calm and governments have stayed out of trouble. What's more, many east Asian governments, notably China's, are hoarding vast reserves of foreign currencies to insure themselves against the risk of a financial crisis - in effect, doing away with the need to borrow from the IMF (and all the onerous conditions that this entails) altogether. But the Asian countries have achieved this by holding down their currencies, artificially propping up the US dollar and swelling America's already vast trade deficit. With exchange rates out of kilter and trade imbalances growing perilously large, many have suggested that the fund should rediscover its original vocation as a global economic policeman.

The changes agreed at the weekend are a small step in that direction. The IMF has been asked to look at how various countries' policies contribute to global imbalances and suggest how they might act together to resolve them. Since the fund already conducts regular reviews of individual countries' economic policies, the only significant change is that it will now also monitor groups of countries collectively. But that is unlikely to make much of a difference. While the IMF has huge power over developing countries to which it has lent money, it has little sway over the United States, China or Britain.

For years, the fund has been telling Gordon Brown that he should raise taxes to plug the government's budget deficit - and has been roundly ignored. Likewise, it has been banging on for ages about the risk that global imbalances could spark a financial crisis, urging the US government to borrow less and US consumers to save more, telling the Chinese to let their currency rise and advising the Europeans and Japanese to reform and stimulate their economies. Again, it has had little impact.

The IMF will now be able to make suggestions in a more joined-up fashion. But the blunt truth is that governments each have their reasons for ignoring the IMF's advice - and there is little the fund can do about it. If leading governments fail to act of their own volition to rebalance the global economy, only financial markets - not the IMF - can eventually force their hand.

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