Over the first half of the year, we’ve built on several narratives that we believe are critical when it comes to understanding how the intersection of geopolitics and economics is set to shape the world going forward. One of these narratives revolves around the extent to which three China-led ventures are set to supplant traditionally dominant supranational lenders on the way to embedding the yuan in international trade and investment.
The new ventures are the BRICS bank, the Asian Infrastructure Investment Bank, and the Silk Road Fund. We’ve discussed each of these at length and we’ve also shown that in one way or another, they all represent a shift away from the multilateral institutions that have dominated the post-war economic order.
In short, they are a response not only to the IMF’s failure to provide the world’s most important emerging economies with representation that’s commensurate with their economic clout, but also to the perceived shortcomings of the IMF and ADB. In other words, they are far more than a new foreign policy tool for Beijing to deploy on the way to cementing its status as regional hegemon.
The role of these new institutions in helping the yuan to replace the dollar as the world’s reserve currency (something which many still claim is an absurd proposition despite all evidence to the contrary) was made clear when, in April, we noted that although Beijing has sought to play down the degree to which the ventures will serve to help establish a new world economic order with China at the helm, the fact that Beijing “may encourage the $100b AIIB and $40b Silk Road Fund to issue loans directly in yuan” (via Bloomberg) and the fact that “the AIIB will establish a currency basket with China set to push for the yuan to take a prominent role” (via The South China Morning Post) suggested otherwise.