Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19
EURO Crisis Set to Intensify: US Dollar Breakout Higher
Stock Market Correction Starting? - 10th Feb 19
Gold Stocks Gather Steam - 10th Feb 19
Are Gold Bulls Naively Optimistic? - 9th Feb 19
Gold, Silver Precious Metals Update - 9th Feb 19
The Wealthy Should Prepare to Be Soaked - 8th Feb 19
US Business Confidence Is Starting to Crack - 8th Feb 19
Top Myths and Facts about ULIP Plans - 8th Feb 19
A Major Stocks Bear Market in 2020? - 8th Feb 19
Gold Market Extremes Test Your Mettle - 8th Feb 19
The Venezuela Myth Keeping Us From Transforming Our Economy - 8th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

U.S. Isolated in Opposition to Chinese Bank

Politics / Global Financial System Mar 31, 2015 - 03:32 PM GMT

By: John_Browne

Politics

Over the past few decades while the economic power of the Chinese has grown exponentially, many observers have been surprised by the relative willingness of China to operate within the financial and economic framework established by the dominant Western order. But it should now be blatantly clear that Beijing prefers to act slowly, deliberately and quietly to advance its agenda. This is the case with the establishment of the Asian Infrastructure Investment Bank (AIIB), a Chinese-led lending institution which could emerge as an international rival to the World Bank and the International Monetary Fund. Such an institution could support Beijing's political interests by controlling the flow of infrastructure financing that is vital for developing economies. As we all know, money can often buy loyalty.


Currently the regional infrastructure lending in Asia is led by the Asian Development Bank (ADB), modeled after the U.S.-dominated World Bank. Founded in the 1960s and headquartered in the Philippines, the ADB is headed by a Japanese appointee who enjoys the support of a 25% U.S./Japanese block vote, dwarfing China's 6 percent. But according to 2013 figures from the World Bank, and excluding the European Union's GDP of $17.5 trillion, China's GDP, at $9.2 trillion, now is second only to that of the U.S. with $16.8 trillion. It should have been clear that China would not accept such relegation indefinitely.

In October of last year China and India led 19 other Asian and Middle Eastern nations in the formation of the AIIB, which was initially capitalized with more than $50 billion. The United States, angry at what it perceived as a clear threat to its domination, supported by European and Japanese interests, leaned heavily on its allies not to join. Notably absent from the AIIB launch celebrations were the important Asian nations of Australia, Japan and South Korea, all very close allies of the U.S. However, once China decided to yield veto power, some Western interests appear to have reconsidered their opposition.

The big blow came in mid-March when the United Kingdom (despite its 'special relationship' with the United States) decided to join. This in turn encouraged other powerful EU nations, including Germany, France and Italy, to jump in as well. On March 26th, even South Korea joined, bringing the total AIIB membership to 37 nations, including 9 non-regional countries. This clear move to support China's campaign for greater regional power left the United States notably isolated. In response to the decision from London to lend its support, a US government official told the Financial Times, "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power."

The strength of support for the AIIB could be another step towards the 'de-dollarization' that many expect to be the endgame of Chinese economic policy. The loss of the U.S. dollar's coveted position as the international reserve currency would be a direct threat to America's ability effectively to set world interest rates and to create seemingly limitless fiat dollars without the need to finance them in free markets. The AIIB represents one more indication that the 'old' order of dollar hegemony may be nearing an end to be replaced likely by a Chinese-led currency, perhaps even one linked to gold.

The ADB argues that there is an $8 trillion infrastructure gap in Asia and that investment there will yield true economic growth and wealth creation. However, the Japanese fear that China will try to tie and even annex Asian countries via a network of strategic pipelines, railways and roads. In all likelihood, China may use the newly established AIIB to do just that.

Under President Obama, America is appearing weak on many fronts, including defense and monetary affairs. Already a combination of Obama's apparently inept foreign policy has led Chancellor Merkel of Germany to take a different posture over the Ukraine, exposing a potentially damaging split in the vitally important and longstanding NATO alliance. By leaning on its allies publicly, but ultimately ineffectively, to resist China's AIIB overtures, Obama has exposed another level of increasing diplomatic and monetary weakness.

Clearly, the Obama Administration was angered by the UK's reversal. Patrick Ventrell, a spokesman for the National Security Council, told CNNMoney that the White House had "concerns" over whether the AIIB will meet "high standards, particularly related to governance, and environmental and social safeguards." He added, "This is the UK's sovereign decision. We hope and expect that the UK will use its voice to push for adoption of high standards."

In this column we have argued at length that China likely desires to replace the U.S. dollar with its own version of an international reserve currency. Doubtless, China wants to capture the massive financial and economic privileges and power that control of such a currency bestows on its host nation.

It appears that de-dollarization is progressing slowly but surely, with the formation of the AIIB being just a single but important and highly visible step in that process. If the U.S. dollar ultimately loses its reserve status, those holding dollars or assets denominated in dollars will feel the pain. Worse still, America will lose the almost total dominance over world monetary affairs she has enjoyed since Bretton Woods in 1944. As a result, the current era of extreme dollar confidence may in the future be considered a period of dangerous delusion and willful ignorance of world events.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules