China’s infrastructure bank initiative addresses the failures of Bretton Woods
The problem is not with the AIIB and the U.S. participation or not in it or its governance: the real problem is with the legacy of the 1944 Bretton Woods agreement which is still shaping the financial and economic order of the world. The AIIB is an instrument that will be able to intervene as the World Bank or the Asian Development Bank (both children of Bretton Woods) do to finance necessary infrastructure projects in Asia, and thus will sustain demand and financial stability and growth in a region which badly needs it. In fact, the AIIB can do it because the legacy of Bretton Woods is wobbling and many countries in Asia and in the world believe this legacy is not working well enough.
The early signs of crisis came at least during the 1997 Financial Crisis. Then many countries in the region objected to the IMF interventions and played with the idea of setting up an Asian Monetary Fund (then Japan, crisis stricken, agreed with China on it). The idea of the AMF was rejected by the U.S., but the problem stayed and came back again in 2008. Then China wanted to use more an instrument of international monetary stability, the basket of currencies set aside by the IMF, which have been not fully used. Again, America refused the idea.
Those rejections may have been right, and the concern about the AIIB governance may also be right. However the problem is: the pillars of Bretton Woods are not working, they are under huge criticism, not only from China, and China with the AIIB is moving cautiously to try to address some of the issues. Now, either the US will start thinking about a new international financial and economic architecture or the Chinese and other countries will start building competing structures further undermining the pillars of Bretton Woods. The Chinese answers may be not the best, but they are answers, the U.S. can’t any longer be defensive about it: it needs to be pro-active: propose different architectures.
Of course part of the issue is also political. Bretton Woods was done by U.S. and U.K., with the U.K. as the junior partner. U.S. and U.K. then, and now shared a lot politically. The same can’t be said between US and China. But if that is the real problem why do not bring it up openly? The US, the EU and Japan (the three main economic powers) are concerned about the Chinese political system, so do they have any recommendation, request about it? Why not set up an international dialogue on the long-term political concerns of the developed countries about the Chinese political system and how it (the present Chinese political system) could impact the global economic/ political order? This is a legitimate concern, which I think the Chinese are well aware of and would discuss.
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