Willem Middelkoop has written an interesting new article that appears in the July issue of International Monetary Review on page 32. If you have an interest in the issues we cover here on this blog, you will want to read his new article. Below are some selected quotes.
-----------------------------------------------------------------------------------------------------------Has the US Lost its Role as the Underwriter of the Economic System?
by WILLEM WIDDELKOOP
"The recent news that Britain aspires to become one of the founding members of the new Asian Infrastructure Investment Bank (AIIB), has shocked many. Larry Summers, who served as a Secretary of the US Treasury between 1999 and 2001, immediately understood the significance of these developments, and wrote in an op-ed for the Washington Post: March 2015 may be remembered as the moment the United States lost its role as the underwriter of the global economic system. I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.‘
This British announcement was highly criticized by the US. The Financial Times quoted an unnamed US official: We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power. This decision was taken after no consultation with the US.‘
Summers was also highly critical of the US‘ strategy toward the newly founded AIIB: The U.S. misjudged the situation tremendously, put pressure on allies and developing countries to under no circumstances be part of AIIB. Largely because of resistance from the right, the United States stands alone in the world in failing to approve International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their increased economic heft.‘"
. . . . . .
"As mentioned, one of the prime reasons for the establishment of the AIIB has been Chinese frustration with, the slow pace of reforms and governance in global established institutions like the IMF, World Bank and Asian Development Bank, which it claims are dominated by American, European and Japanese interests.‘
The AIIB will be used to finance large infrastructural investments mainly in Asia. The Asian Development Bank (ADB)has published a report stating that the region requires up to $9 trillion in infrastructural investments in the coming years. Although China is the largest investor in the region, it has merely 5% of the voting rights in the ADB, while Japan and US have a total of 26% of the voting rights (13% each).
This can be seen as an attempt to keep the Asia investment developments under Western control. This same kind of US dominance can be found within the voting structures of the IMF and the World Bank. According to some, international politics play an important role in IMF decision making. The most important decisions within the IMF require a special majority of 85% of the votes, giving the USA, with over 17% of the votes, an effective veto. France, a country with just over 65 million people, currently has more voting rights (4.29%) within the IMF than China (3.99%) with 1.3 billion inhabitants. Belgium, with just over 10 million people, has more voting rights (1.86%) than Brazil (1.72%), a country with a population exceeding 200 million."
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