The World Bank has a problem: It's dwindling in stature, and its loans to the developing world pale beside the money rolling in from private investors. World Bank Jim Yong Kim's solution? Partner the World Bank with those same private investors. If you can't beat 'em, join 'em.

Unfortunately, that proposal could make things even worse. What the World Bank needs is radical overhaul.

The institution was created after World War II to aid postwar reconstruction. Since then, it has provided loans to poorer countries for infrastructure and other economic development projects. It tends to work exclusively with advanced Western nations, taking their money and pumping it into the developing world.

The lender governments (like the U.S.) are not always keen on this arrangement, which has created problems for the bank. But a bigger problem lately has been skyrocketing private investment in developing countries. In 2017, the World Bank provided $61 billion in investment. Private investors, by contrast, provided $1 trillion — and regularly invest that amount each year. The World Bank hasn't even loaned out that much in its entire history.

Kim's response is to essentially offer the World Bank as a middleman between private investors and developing countries, "ready to back projects with guarantees and other incentives." The bank gets over $7 billion a year through these sorts of partnerships already. But Kim hopes to build that up to $30 billion, relying on everyone from sovereign wealth funds to private equity firms. His bet is they'll enjoy sufficient returns to justify the loans on a profit basis.

Of course, not everyone at the World Bank is thrilled by his plan. They view cooperation with private for-profit institutions as a corruption of their mission.

They may or may not be right. But the real problem is this: Whether or not the World Bank partners with the private sector, and whether or not it lends for profit, borrowing countries will be taking loans and paying them back in a currency they don't control.

That might seem like a really technocratic point. But borrowing in a foreign currency causes such enormous problems for developing countries that the economists Barry Eichengreen and Ricardo Haussman once termed it "original sin."

The U.S. government, for example, borrows money and pays back its creditors in a currency it controls: the U.S. dollar. Rather than taxing its citizens and slowing down the American economy, the U.S. can always just print money in a pinch to pay its debt obligations. If investors ever decide they don't want U.S. bonds, the government can always direct the central bank to pick up the slack. As long as the economy doesn't overheat, and inflation remains under control, this can go on indefinitely.

The upshot is the U.S. government can run whatever deficit it needs at a given moment to keep the economy robust and vibrant. (Indeed, the biggest problem with American economic policy is the demented refusal to recognize this fact.)

But when, say, Zambia borrows from the World Bank or from private foreign investors, those creditors don't want to be paid back in the Zambian kwacha. They want to be paid in a currency that's useful on international capital markets. (Which usually means U.S. dollars.) Since Zambia can't print that currency, it has to go out and get it. That puts the Zambian government in a monetary and fiscal straightjacket: It can't adjust its budget to support the needs of the Zambian economy. It must adjust to the needs of Zambia's creditors. The result is often austerity and contractionary fiscal policy, which bleeds the citizenry and harms rather than helps the developing country's economy.

The defense of foreign borrowing is that well-designed loans put to good use will strengthen the borrowing country's economy. That will give it a bigger tax base, offset the cost of paying back the loan, and produce a net win. But economic development is hard and complicated, and in practice that sweet spot is hard to hit.

So what should the World Bank do?

Well, it could try "loans" that aren't paid back — i.e. charity and international aid. Of course, unconditional cash grants to third world governments will be even less popular in developed countries than the current approach. So the World Bank could try giving directly to the people of developing countries instead — essentially a universal basic income via international aid. Programs the World Bank could partner with are already up and running, and show very encouraging results.

One big challenge for economic development is that people in poorer countries rarely have enough money to make a good consumer base. So the local businesses propped up by foreign lending often fail — and still have to pay back the debt. When it comes to loans to governments, the consumer base is the tax base. And by providing a lot of unconditional cash aid to consumers in developing countries, the World Bank would strengthen that tax base. That could create an environment where the bank's more traditional loans to governments are more likely to work out.

More ambitiously, the World Bank should start helping developing countries stand up their own fiat currencies and central banking systems — which they could then use for domestic public investment.

This would be a consultancy role far more than a financial one. But the bank has already recognized the importance of institution building and fighting corruption to its overall project. Conventional economic wisdom has long held that establishing your own fiat currency comes after development is achieved, not before. The World Bank has the power and prestige to assert that this is backwards, and that future research and experiments should adjust accordingly.

That alone would do some real good.