New structural linkages between Europe and Asia through three developmental banks that have emerged outside the post-war Bretton Woods framework are changing the global geopolitical architecture, with Eurasia at the core.
China is the linchpin of the evolving world financial architecture. On Saturday, it led the launch of the Asian Infrastructure Investment Bank (AIIB). Notwithstanding the focus on the AIIB — a 57-nation lender, in which India and Russia are also major partners — China also quietly became the 67th member of the European Bank for Reconstruction and Development (EBRD).
With China on board, the EBRD is rapidly re-defining its role. In 1991 it was formed to reinforce the unipolar world that had emerged following the Soviet Union’s collapse. Its focal area of interest was Eastern Europe, which was no longer under Moscow’s shadow, and had to be rapidly integrated in the western institutional web. But last week, Suma Chakrabarti, the EBRD head, acknowledged that China, which was steering a Eurasian Silk Road connectivity initiative, was now a major pivot of global economy. China’s growing economic and political clout had been accomplished in little over two decades of the Soviet Union’s collapse.
"Eastern Europe is an example of how the world has changed. Ten years ago those countries would have been looking for investors from Western Europe, they are now widening their portfolio and that includes China. It is a big win for our countries of operation to get China on board," said Mr. Chakrabarti in an interview with Xinhua. He added: "In recent years because of signs of weakness in the eurozone and so on, those countries in Eastern Europe have been trying to diversify their sources of investment. They have looked at the Gulf, they have looked at Asia, looked at North America and China has started investing much more in Eastern Europe. On top of that there is central Asia, and Turkey and North Africa where China is also investing.”
The state-run, China Daily newspaper, quoted Mr. Chakrabarti as saying that the EBRD would like to work with China in other multilateral financial institutions such as the AIIB. He also backed China’s Silk Road initiative.
Analysts point out that launch of the AIIB is another example of the reinforcement of economic bonds between Europe and Asia. In fact, the run up to the formation of the bank opened cracks within the Atlantic Alliance. Despite U.S. objections, European countries including Britain, France and Germany joined the AIIB. Australia and South Korea — top U.S. allies in the Asia-Pacific — also decided to participate in the development bank as its founding members.
At a Sunday press conference, AIIB head, Jin Liqun, asserted that the bank would lend only in U.S. dollars, defusing speculation that Beijing would use the institution to promote the internationalisation of the yuan. Yet, the move is likely to channelise China’s foreign exchange reserves, which have so far been mainly siphoned into low-yielding U.S. treasury bonds. The AIIB also elected a 12-member board of directors, which would steer operations. Dinesh Sharma, Additional Secretary of Ministry of Finance, will represent India at the board.
Far from being a rival, the New Development Bank of Brazil-Russia-India-China-South Africa (BRICS) grouping is also set to work closely with the AIIB. Mr. Sharma told resident Indian media that “formal and informal” channels of communication for coordination had been established between the AIIB and the New Development Bank of the BRICS.
Earlier, K.V. Kamath, president of the NDB was quoted as saying that a “hotline” would be stabilised between the NDB and the AIIB, which were "new institutions coming together with a completely different approach".
