China-led Asian Infrastructure Investment Bank Opens Without the US
Mark Weisbrot of CEPR says the institutions of global governance, especially the ones that have actual power, have historically been controlled by the United States – this bank marks a departure from that trend
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Real News Network. I’m Sharmini Peries coming to you from Baltimore.
The $100 billion China-led Asian Infrastructure Investment Bank has opened its doors in Beijing. Its objective is to invest in Asia-specific infrastructure initiatives. It has 57 members thus far, and they include the UK, Saudi Arabia, Sweden, Australia, Germany, France, and others, but it does not include the United States.
To discuss the new bank, I’m joined by Mark Weisbrot. Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC. He’s the author of the new book, Failed: What The Experts Got Wrong About the Global Economy, published by Oxford Press. Thank you so much for joining us, Mark.
MARK WEISBROT: Thank you.
PERIES: So the business press, Mark, is comparing this new bank to the World Bank. Is there a comparison here?
WEISBROT: Well, there are a lot of comparisons, but I think the main, the most important thing, is the difference. It won’t be controlled by the United States. The United States, actually, by formal–informal agreement, not by any laws–but by tradition, the head of the World Bank is always American. And that’s just the symbolic part of it. The fact is–and of course the head of the IMF is always a European. That’s been true since they were created back in 1944.
So you have this holdover, really, from the beginning of the post-World War II period, 70 years ago, where the United States was the only standing industrial power in the world, created these institutions, and has controlled them, really, and used them enormously for influence over other countries’ economies.
PERIES: So, Mark, will–who will be controlling this bank?
WEISBROT: Well, it, there are 57 founding members. And China is putting up most of the capital, at least the first $100 billion. So China’s going to have a major influence. But the other countries will also have some influence. It won’t be like the IMF and the World Bank, which have been controlled by the United States the whole time. And the U.S. [deposes]–and the Obama administration was quite angry with the UK, for example, was the first of its allies to defect and join as a founding member.
PERIES: And they joined last year about this time, if I remember.
WEISBROT: It was in March, actually, yeah. So they couldn’t stop these countries. And this was part of a, a big struggle, of course, that’s going on in the world, because the world is changing. China is now, even according to the IMF estimates, the largest economy in the world, and the U.S. was always the largest economy for, you know, the past century or so.
So that, that’s changed. But the institutions of global governance, especially the ones that have actual power, were all controlled by the United States. Even the World Trade Organization, which has a consensus process for decision making, has rules that were really written by the rich countries. And so it really works to their advantage as well.
PERIES: Mark, now, the renminbi or the yuan was recognized as a global currency to operate under. Will this new bank be operating under the U.S. dollar, or using the U.S. dollar or the renminbi?
WEISBROT: Well, it isn’t that clear, because they could, the countries involved in the bank, especially in Asia, could use other currencies more in their transactions. They don’t have to always go through dollars. And that’s already been happening some, in a limited way. The most, the U.S. still has the main global currency of the world, 60 percent of world reserves, actual bank reserves, are still in dollars. But that’s something that could change over time, as well.
PERIES: Mark, the market fluctuations in China, is that going to have any impact on the kind of money they’re going to be able to invest in this new bank?
WEISBROT: No, I don’t think they’ll have any impact, because China’s reserves are so huge relative to their economy, more than $3.5 trillion, that it’s just not going to–the amount of money we’re talking about is too small. No matter what happens to the Chinese economy, they’ll be able to afford the reserves that they’ve committed.
PERIES: Now, the, one of the reasons that people speculate caused the recent fluctuations is that a bubble was created in terms of infrastructure development in China, and the kind of money that was put into real estate, for example, and development of real estate, and that this has created a bubble itself. Now, I suppose this infrastructure investment and development bank for Asia Pacific is really going to move, you know, outside of China. Will this help stabilize the Chinese markets?
WEISBROT: Well, I think it will contribute to growth in the region, and that, of course, will help China, but also the other countries in the region. I think China’s troubles are somewhat exaggerated in the Western press. You have to remember that the Chinese government has control over most of the banking system, and most of the largest companies. And most of the investment in the economy as well is controlled by the government. So they–they can fix things a little easier than you can someplace like Europe, for example. So I don’t, I wouldn’t predict that they’re going to have a long period of trouble.
PERIES: Mark, what do you think would underline reasons for these recent fluctuations we saw the first two weeks of this year?
WEISBROT: Well, there are imbalances in the economy. I think that some of it was also caused by some of the neoliberal reforms that are opening up the capital account more, and so they had a certain amount of capital flight. They actually lost reserves last year. And I think some of those reforms did not help in terms of stabilizing the economy.
PERIES: All right, Mark. I thank you so much for joining us today, and we look forward to a series of interviews with your new book.
WEISBROT: Thank you.
PERIES: And thank you for joining us on the Real News Network.
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