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AIIB is reshaping the global financial order

Editor: Li Kun 丨CCTV.com

12-28-2015 17:54 BJT

By Zhang Monan, deputy research fellow with the Economic Projection Department of the State Information Center

In today's world, the existing order is breaking down, and the rise of new forces is driving a new order. Since the 2008 financial crisis, dramatic changes have occurred. The global economy is entering a new phase with major challenges. The international financial order should be reshaped.

 

For a long time, the global economic governance system is characterized by centering on the Group of Seven (G7), led by developed countries including the US and European nations, and overshadowed by the dollar hegemony.

Whether it is the areas of international trade, international finance, or world development, it is branded with "super-power dominant all" characteristics.

Observing from the core of existing system, it was derived after the end of World War II or during the Cold War. Accordingly, in the fields of trade, global trade governance mechanisms had centered on the World Trade Organization (WTO), supplemented by regional trade arrangements.

The global financial governance mechanism was focused on the International Monetary Fund (IMF) and supervised by the Financial Stability Forum (FSF) and Basel Committee on Banking Supervision.

Additionally, the global development governance mechanism had the World Bank (WB) as the central mechanism, supported by the Asian Development Bank (ADB) and other regional development banks.

Such mechanisms follow the "Washington consensus", and dominated by the US, European nations and other developed countries. Developing countries do not enjoy the right to speak for its interests.

Existing international organizations are no longer efficient to shoulder the responsibility of global governance to reflect a "fair, win-win" and "sharing the interests and risks" concepts.

Therefore, the Asian Infrastructure and Investment Bank (AIIB), which was formally established on December 25, vows to build an inclusive, open and transparent new global financial institutions.

It is expected to play a significant role in promoting interconnectivity, cross-border financing, and other aspects of sustainable development. The AIIB can be regarded as a new starting point for global financial governance.

The core of reconstructing the global financial order is to solve imbalances in the distribution of financial interests. In recent years, Asian nations have accumulated significant financial resources.

Its foreign currency reserves account for about two-thirds of global reserves. However, the capital had relied too much on low-yielding dollar assets.

In 1952-2014, the average yield of foreign assets held by US investors was 5.72%, while the average yield was 3.61% for foreign holdings of US assets.

The gap was generated by the US dollar assets low risk, and by the currency valuation effect caused by continuous US depreciation efforts of other currencies. The US dollar enjoys this priority because the current international monetary system is dominated by it.

The AIIB would provide reliable long-term financial support for economic and social development in Asia to reinforce infrastructure construction as an economic growth engine.

It can function as "leverage" to better utilize Asian capital to promote a full range of interconnectivity in the region.

Nevertheless, the AIIB is not limited to Asia, but extended to other countries covered by the "Belt & Road" initiative, including European and African nations, to implement multilateral financing.

Multilateral financing should not rely on financial and material resources of a few countries, but should have multi-dimensional integration of related governments, financial institutions and private capital, to increase investment.

The AIIB should make good use of 20+ funds established by different cooperation organizations or mechanisms, including China - ASEAN, Eurasia, Central and Eastern Europe, as well as the newly-established Silk Road Fund.

The AIIB should encourage private capital to participate in the "Belt and Road," in the forms of a public-private partnership model (PPP), or build-operate-transfer model (BOT), or other means.

By increasing long-term potential benefits, the AIIB can enhance private capital, encouraging private capital, insurance companies, social security funds, pension funds and other institutions to participate in the Silk Road Fund.

AIIB would play an essential role in global financial governance, if commercial and social funds are effectively coordinated.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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