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The AIIB Is a Threat to Global Economic Governance

Apr 02 , 2015

The U.S. rebuke of Britain earlier this month for its participation in the China-led Asian Infrastructure Investment Bank (AIIB) has put the spotlight on a set of questions that have dogged policymakers and economists for years: Who is in charge of global economic governance? Who sets and manages the rules? And should they be set multilaterally?

Given China’s controversial lending to countries with murky track records — not only in terms of good governance and political stability, but also credit ratings — the concerns about the direction of the new bank and the role that all shareholders will be playing are spot on. But the U.S. stance vis-à-vis the new institution and the role that China might play in it is also highly hypocritical. With Congress’s approval of International Monetary Fund (IMF) reform still pending, is the United States in the best position to preach to others on the risk of using China’s mold for shaping the new bank?

As big developing countries, in particular China, have transformed in the last two decades, so has global economic governance along with it. But governance seems to evolve at a much slower pace than the world economy. The so-called Bretton Woods institutions — the IMF, the World Bank and, to some extent, the World Trade Organization (and its previous incarnation, the General Agreement on Tariffs and Trade) — that have been in place since the end of World War II, reflect a world economic order dominated by the United States. Despite their 188 states-strong membership, both the IMF and the World Bank continued to be managed by the United States and western European countries — Britain, Germany, and France. The United States is the largest shareholder in the IMF, contributing approximately $65 billion, which gives Washington veto power on other countries’ deliberations thanks to the Fund’s weighted voting system.

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