Commentary: AIIB catfish in global financial governance system

Fishermen usually put catfish with sardines, because the appearance of catfish that love swimming will increase the level of activity among sardines and will keep them alive.

In the global financial governance system, the Asia Infrastructure Investment Bank (AIIB) inaugurated Saturday is to some extend like such a catfish.

The China-proposed AIIB, which is aimed at offering funds for infrastructure projects particularly in developing countries, is expected to prompt existing world financial institutions and organizations to accelerate reform.

The current international economic and financial system, represented by the U.S. dominated-World Bank (WB) and the International Monetary Fund (IMF) established after the World War II, has shown its defects especially in the wake of the 2008 global financial crisis.

On the one hand, the international currency system that relies on the U.S. dollar as the main international currency has its systematic risks.

The United States, the issuer of the U.S. dollar as the leading global reserve currency, cannot give simultaneous consideration to both its home economic policy making and overseas demands for the reserve currency needed for global economic and financial development, which has led to a great imbalance of the world economy.

On the other hand, the international currency system has not adjusted itself in accordance with the great changes that have occurred in world economies.

IMF data showed that the global share of developed economies has decreased from 83.6 percent in 1992 to 61.9 percent in 2012, while that of non-Western economies increased from 16.4 percent to 38.1 percent during the same period.

China, with its annual gross domestic product (GDP) exceeding 10 trillion U.S. dollars so far, has grown into the world's second largest economy. But even if the U.S. Congress approves the IMF reform package, the voting shares of China will reach only one third of that of the United States.

China's GDP has doubled that of Japan but its voting power at the Asian Development Bank (ADB) is about one third of that of Japan.

It seems very peculiar that debtor countries instruct creditor countries to balance economic growth in the post-crisis era.

Under such circumstances, the AIIB may activate the global drive to reform its financial governance system.

In fact, some have started to fidget. In May 2015, Japanese Prime Minister Shinzo Abe announced that his country would work with U.S., Japan-dominated ADB to provide 110 billion U.S. dollars to develop regional infrastructure in the next five years, about 30 percent jump from the previous five-year period.

Also in that month, World Bank President Jim Yong Kim said that the WB would provide 12 billion U.S. dollars worth of loans for Indonesia to help the largest South East Asian economy to finance its development.

In reality, there should be nothing to worry about the emergence of the AIIB, as the new bank is not a competitor, but a partner to other existing financial institutions. They can work together to facilitate Asian infrastructure construction and sustainable development, which will improve the global financial governance structure and eventually promote world economic growth. Endi