Western members of Asian infrastructure bank can help keep China honest

Following the broad, public and emotional debate about the candidates for membership in the Asian Infrastructure Investment Bank, one may conclude that a new cold war is indeed dawning. Allegedly, this is between a declining superpower, the United States, and a rising future hegemon, China.

While this way of framing the debate may serve the public interest in staged showdowns, the reality is far more sober.

The Bretton Woods system included not only the tying of the US dollar to the gold standard, it also envisioned the creation of two then-new organisations, the International Monetary Fund and the World Bank. Since then, the link between gold and the dollar has been abolished, without much harm to the international financial system, and it may now be time for the IMF and World Bank to make changes of their own.

Both organisations played a huge role in the 1960s and 1970s, particularly for development projects in the developing world, but not without criticism. It has been claimed they were too close to the national interests of the dominant Western shareholders. And, more recently, the bigger emerging economies, foremost Brazil, Russia, India, China and South Africa of the BRICS bloc, complained that the old stakeholders did not accept their growing weight in the world.

Making changes to the rules regulating the IMF and the World Bank has proven to be very time-consuming. Meanwhile, the idea of creating a new organisation that is more reflective of the interests of the BRICS and other emerging economies is gaining currency. This is where the Asian Infrastructure Investment Bank comes in.

Is this something that deserves to be viewed only in terms of global competition? I don't think so.

There is no need for any institution to monopolise the financing of investment projects crucial for the infrastructure of Asia. Private banks also compete with one another. The crucial issue here is how these organisations are regulated and run.