April 1, 2015 1:00 pm JST
The AIIB effect
China-led fund to shake up world financial order
LONDON -- A number of major European countries have indicated their desire to join the Chinese-led Asian Infrastructure Investment Bank, to be established by the end of the year. It is a development that does not sit well with the U.S.
Paola Subacchi, director of the International Economics Department at Chatham House in the U.K., is an expert on the functions and governance of international financial and monetary systems, including those of China. The AIIB, Subacchi recently told The Nikkei, could spur dramatic changes in the international financial order.
Excerpts from the interview follow.
Q: A growing number of U.S. allies, including the U.K. and other major European nations, are expressing an interest in joining the AIIB. What do you think of this development?
A: I find rebukes by the U.S. against key allies that are looking to join the China-backed bank very interesting.
The U.S. could have been more careful since the agreement last autumn on [the AIIB's] establishment. By stressing and telling the U.K. they are surprised by its decision, they created the noise around this episode. But the reaction of the U.S. did not block other developed countries like Germany and Italy from joining.
The other thing I found very interesting is the fundamental delusion in the U.S. The Executive Board of the International Monetary Fund approved in 2010 far-reaching reforms that included a significant shift of voting power to emerging, developing markets to reflect the growing influence of those countries. Despite the approval, however, the reforms remain shelved due to the opposition of the U.S. Congress.
The world has changed, with different new economies and new order but the U.S. is very slow to recognize it.
Q: How will the AIIB change global financial systems?
A: Current international financial institutions, such as the World Bank and the IMF, were all established under the Bretton Woods agreement, which was signed near the end of World War II. Parties to the Bretton Woods Conference, where the agreement was made, decided that the system would rest on the U.S. dollar under an initiative led by the U.S. and the U.K.
The creation of the AIIB has opened up a Pandora's box for the U.S.-led world, putting pressure on existing international financial institutions to adapt to a new reality. The issue of how the new bank should be governed remains to be resolved. The World Bank and IMF are facing a similar problem.
Q: What does Beijing aim to achieve by establishing the AIIB?
A: Parallel to the creation of the new bank, China will further internationalize the yuan. Under the Bretton Woods system, the IMF and the World Bank were major forces behind the globalization of the dollar.
China has become the largest trading country in the world, and a little less than 20% of trade with China is cleared in yuan. The country probably aims to achieve several targets, including boosting yuan-denominated loans through the AIIB.
It is a way to invest in profitable projects, too. The country would be able to accelerate the globalization of Chinese companies by having them participate in major infrastructure projects across Asia.
Q: A number of players seem to be wary of leadership of China at the AIIB. What should be done to alleviate this concern?
A: To make the AIIB a transparent and accountable international organization, other countries need to actively participate in it to shape the governance. It is also important that not only smaller developing countries which could be more vulnerable to Chinese influence but also experienced advanced nations, including the U.S., cooperate and participate in the scheme together.
Q: The U.K. was the first European country to go against Washington's wishes and announce its intention to participate in the fund. How will this affect relations between the two countries?
A: In the power struggle between the U.S. and China, the British government has been playing its cards right. Britain will be able to reap a profit if it can capture a piece of Asia's market for infrastructure projects.
The U.K. could have followed Washington's lead and chosen to stay out of the AIIB, but I don't think it would be a good strategy. Of course it created tensions but I do not think it will deal a fatal blow to the U.S.-U.K. relations.
Q: What kind of line Japan should take?
A: Japan should join the AIIB more deeply than the U.S. The focus of the AIIB is on Asia, and Japan is the one of the biggest economic powers in the region along with China. I think Japan should secure a sufficiently strong say at the institution.
I fully understand that Japan heavily relies on the U.S. for its national security. However, it should still be able to participate in the scheme for commercial reasons. I think it's high time that Japan shows that it can make decisions for itself independent from the U.S.
Interviewed by Mariko Kodaki, Nikkei staff writer
No comments:
Post a Comment