China has taken an initiative to found IMF and World Bank styled, Asian infrastructure investment Bank (AIIB) that will focus on development of Asia. Western policymakers failed to anticipate such a move and left with scratching heads over whether to participate or not.
- Countries have rushed in to join the initiative as March 31 remains the deadline. Last week's decision by UK to join have seen a rush from European countries to follow suit. Germany, France, Italy, Switzerland and Luxembourg all lined up to join, as they fear it would be forgone opportunity to participate in the region's development.
- Asian countries like South Korea which has a dispute with China over control of sea areas have set aside the political difference and declared to join in.
- China, to increase the appeal of the bank has decided to give up its veto over the decisions made by the bank, however exact decision making structure is yet to remain unfold. China is expected to have some sort of influence over decision making by the bank.
- Estimated subscription capital for the bank rose from $ 50 billion to $100 billion within months.
Impact -
- Short term impacts are negligible but holds greater importance over time to come. If directed in the right path bank might solve Asia's funding need and also reduce the volatilities over the regional currencies in longer term. It will also boost confidence over the regions' economies in future.
- The development is clear to pose challenge to the role of World Bank and IMF, whose decisions have remained controversial as US holds veto over the decisions even holding just 20% of the subscribed capital.
- US treasury secretary Jack Lew warned the policymakers that their failure in 2010, to ratify IMF voting policies has led to this point and development of this bank might hold greater implications for future.
