New Trends of Globalization

Posted by Martin Zeis / global economy – June 24, 2014 7:54 pm

China expands plans for World Bank rival
By Jamil Anderlini in Beijing

China is expanding plans to establish a global financial institution to rival the World Bank and the Asian Development Bank (ADB), which Beijing fears are too influenced by the US and its allies.

In meetings with other countries, Beijing has proposed doubling the size of registered capital for the proposed bank to $100bn, according to two people familiar with the matter.

So far, 22 countries across the region, including several wealthy states in the Middle East, which China refers to as “West Asia”, have shown interest in the multilateral lender, which would be known as the Asian Infrastructure Investment Bank (AIIB). It would initially focus on building a new version of the “silk road”, the ancient trade route that once connected Europe to China.
Most of the funding for the lender would come from China and be spent on infra-structure projects across the region, including a direct rail link from Beijing to Baghdad.

China’s push for a regional institution that it would control reflects Beijing’s frustration at western dominance of the multilateral bodies. Chinese leaders have demanded a greater say in institutions such as the World Bank, International Monetary Fund and Asian Development Bank for years but changes to reflect China’s increasing eco-nomic importance and power have been painfully slow.

“China feels it can’t get anything done in the World Bank or the IMF so it wants to set up its own World Bank that it can control itself,” said one person directly involved in discussions to establish the AIIB. “There is a lot of interest from across Asia but China is going to go ahead with this even if nobody else joins it.” (…)

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Jakarta Post, June 23, 2014

Currencies and the collapse of globalization
by Paul Donovan, London


The collapse in globalization is nothing to do with global trade. Global exports (as a share of the world economy) are at a higher level than they were in 2007 — here there has been a complete recovery. Instead the collapse has taken place in the realm of global capital flows. Global capital flows (again as a share of the world economy) are running at roughly a third of their pre-crisis peak, and around half the levels seen in the decade before the global financial crisis.

The collapse of global capital flows has been brought about by several factors coming together. Investors, in particular banks, are more regulated than before the crisis. With that regulation has come about a bias to investment in domestic markets — in some cases as an unintended consequence of regulation, in some cases as a direct policy objective. In addition the more political nature of several developed financial markets has acted as a deterrent to international investors, who are likely to have less understanding of politics in remote markets.

When capital flows were abundant, an economy with a current account deficit did not have too many problems finding the capital inflows necessary to finance the current account position. Only a tiny proportion of the huge amount of capital sloshing around the world had to be diverted to provide the funding. Now, with capital flows reduced to a thin trickle, a current account deficit country has to work a lot harder to attract the capital that they need. Crudely put, it is three times more difficult to finance a current-account deficit, now that capital flows are one third their pre-crisis levels.

This helps to explain the Euro. (…)

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