Old hero looks on bad temperedly as would-be new hero launches his idea for a new global financial order. Old hero tries for all he is worth to prevent the new idea from gaining currency among his erstwhile followers. His efforts are to no avail. The new hero manages to amass overwhelming support for his proposed institution.
Ah you might well say. This is all about the Asian Infrastructure Investment Bank, new hero being China and old hero being the USA. Right? Yes indeed. But there is actually another answer which could be considered equally as correct. It is the case of the creation of the IMF. On that occasion the new hero was the US with the UK being the grudging old hero. At that point, not even an alternative idea put forward by none other than John Maynard Keynes was able to prevent the dollar based international structure from being born.
The IMF was created in 1945. And now it is 2015. 70 years is a long time in economics, perhaps. Yet surely not that long for the American memory not to be stirred and to recognise the irony of the turn of events. Well may be not. But it is certainly an indication that people react in pretty much the same fashion when the same kind of shock hits them.
That said it is difficult to envisage the renminbi acquiring the position that the US dollar did in the immediate postwar years. In passing, it should also be noted that the US dollar’s reign itself did not last that very long. The dollar’s convertibility to gold was terminated in 1971 after all, thereby effectively ending the dollar’s position as unchallenged international key currency. Nevertheless the Chinese currency is even more disadvantaged than the dollar of those days in that China’s economic supremacy of today is nowhere near that of the US in the immediate postwar years. At that point, everyone else was struggling with postwar redevelopment. They desperately needed dollars to finance that endeavour. The renminbi is so clearly not in that position.
In Japan we have the saying “acorns comparing heights” indicating competition among contestants who are not that different from each other in terms of ability. There is no outstanding winner with undisputed might. This is very much the case now that we live in a highly globalised world in which people, goods and money flow so effortlessly over borders. No single nation or region can boast of being the oak tree rather than an acorn. China may be an extremely super large acorn but it remains an acorn nonetheless and not the tree.
Moreover, the dollar of pre-1971 years was the only currency that was convertible to gold at a fixed price. The renminbi enjoys no such exceptionality.
All this being said, one can understand China’s motivations behind the AIIB initiative quite well. It needs access to the infrastructure development market of Asia. In needs some big projects on which it can use up its vast excess production capacity. Having run out of investment opportunities inside its own economy, it is now looking for space elsewhere. It is also looking for a way out of dollar-dependency. It wants access to global finance in its own right without having to rely on the dollar as a gateway.
So the new kid on the block is trying to grow up in a workable fashion. The US should look back on its experience of 70 years ago and try to avoid the British mistake of attempting to block the newcomer’s way. Begrudging new people access to club membership is never a very sophisticated thing to do. They will sulk, become defiant and go on to create a club of their own. This will more often than not lead to unproductive squabbles and pitch warfare.
It was refreshing to watch the British manoeuvre on this occasion. To be the first to stand up and be counted as a member of the AIIB club was a stroke of piratical genius. It seems that the country’s buccaneer spirits have not died down completely. A completely different performance to 70 years ago. Much more sensible. It is a typical case in point which shows you that when you are no longer the old hero whose position is being threatened by youthful rivals you can relax and come up with some impish ideas about position taking.
Most pitiful in this context has been Japan’s response to the AIIB idea. It would have done better to try to outdo the British. If a young and upcoming very large Asian acorn is trying to boost infrastructure development in the area, a more mature and more experienced Asian acorn of not at all negligible size should welcome the opportunity to lend a hand. Or even both hands. Having secured the position of wise old advisor, Japan could have gone on to mediate between old hero and new hero. Alas no such luck. Japan just keeps looking on with scared stiff eyes for the new comer and apologetic diffidence for the old timer. Pathetic.
Noriko Hama
Professor & Dean at Doshisha Business School, Kyoto
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