China-led Asian bank challenges US dominance of global economy

China's grand arrival on the world scene is playing out in many acts. The latest to fixate players and watchers is the Asian Infrastructure Investment Bank (AIIB).

It is the new boy on the global banking block. For seven decades, American-dominated institutions have been the cornerstone of the global economic order. Rising from the rubble of the second world war, the Bretton Woods pact to establish a global monetary order paved the way for institutions such as the World Bank and the International Monetary Fund (IMF), and later, regional institutions such as the Asian Development Bank (ADB). These were created to establish economic cooperation and development for global stability and prosperity.

At the time, the US economy accounted for half the world's gross output while its Federal Reserve held two-thirds of the world's gold reserves. Under the system, each country had to adopt a monetary policy that maintained the exchange rate by tying its currency to gold or the gold-pegged US dollar. The arrangement in effect gave the dollar an unrivalled position as the world's de facto reserve currency - a mantle it may soon relinquish.

That status quo is changing following the March 31 deadline for applications for founding members to join the AIIB, a Chinese-led infrastructure bank that has the potential to compete with existing players for dominance.

The AIIB is the realisation of a long push by China to rewrite the rules of global economic and financial governance. It will be the first financial institution on such a scale that does not have the US as a founding member.

President Xi Jinping first raised the idea of the bank in October 2013. His reasoning was that in the coming decades, Asia and the developing world would need massive investment in infrastructure of all kinds - from roads and railways to electricity and water supplies and telecommunications projects.