Saturday, April 4, 2015

Peterson Institute Economist: New AIIB will Complement Existing Institutions

The brief video below quotes Peterson Institute economist Nicholas Lardy as saying that the new Asian Infrastructure Investment Bank (AIIB) led by China will be a complement to existing financial institutions (not an effort to replace them). While its true that this new bank, the new BRICSBANK, the Chines Silk Road Fund, and the new BRICS reserve fund are all intended to increase the prestige and global influence of China and the BRICS nations, that does not mean they are ready to abandon the IMF and World Bank. I think its more accurate to view these new alternative financial institutions as ways for these nations to better their standing within the IMF. 

At least for now, major monetary system change (including a change to the US dollar status as the sole global reserve currency) is most likely to happen at the IMF because this is the global financial institution where ALL the major nations of the world are members. If there is to be a global conference some day to "reset" the system and re-write the "rules of the game", the IMF is where this would happen. If that changes, we will cover it here. For now, the IMF is the only truly global game in town.


Added note: In this more in-depth interview Alasdair Macleod gives his take on the new AIIB. He sees it as strong evidence that the US dollar will be replaced as sole global reserve currency. He views the new bank more as a competitor to the IMF than a complement if you want to see that point of view discussed in more detail.

Added note: This Asia Times article agrees with what we have said here. That being to use the AIIB to pressure the US to accept reforms at the IMF. In addition this Asia Times articles author says he believes China will eventually ask the US to join the AIIB. Once again, the evidence we see suggests that China wants more influence within the IMF, not to leave the IMF. Also, it is likely China wants the US to treat it more like an equal since its economy is now the second largest in the world. We'll follow it here.

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