Integration between East and West Multilateral Banks

Economics, Premium POM

Massive Infrastructure Development Projects will Require Joint-Funding

By JC Collins

A recent announcement by the President of the China-led Asian Infrastructure Investment Bank (AIIB) should put to rest any lagging rumors and theories which proclaim opposing monetary policies between East and West.

AIIB President Jin Liqun said Wednesday while attending an event in Washington, “I would say a huge amount of chemistry has already been nurtured between the AIIB and the World Bank, the AIIB and the ADB.

Jin was discussing the need for the AIIB to work alongside other multilateral lending institutions, namely the World Bank and the Asian Development Bank (ADB). “We are working with the World Bank and the ADB for co-financing. Maybe in June, we could have couples of projects approved by the World Bank, by the ADB, and by us.”

The nature of the multilateral monetary transition is such that all nations and institutions will be mandated with developing closer relations on important global challenges and needs.  The latest announcement from the President of the AIIB further confirms this growing relationship and multilateral mandate.

The AIIB will also be “processing freestanding projects” which will be separate from the joint-funding projects with the World Bank and the AIIB.

Over the next decade it is expected that demand for infrastructure development could be as high as $10 trillion.  When you include the need for infrastructure development and upgrades in the western countries this total investment estimate could double or triple.  Which is why AIIB President Jin has stated that there cannot be “competition” on this funding, but only “coordination”.

This fits with one of the main aspects of the POM thesis surrounding the coming commodities boom.

The next year or two should be considered transition years.  The transition itself, or transmutation, will continue as a natural process, but the initial components of the multilateral transition itself will be structured and implemented in the coming months.

The IMF published an updated policy agenda on global growth yesterday and again mentioned the need for structural reforms and a broader use of the SDR.  The other interesting thing which was mentioned was the open expression of intent of the IMF to work closer with regional financial arrangements.

Most readers will make the connection with this policy shift and the POM conclusions that regional arrangements and currency units will play a larger role in the coming years.  The Chiang-Mai Initiative Multilateral will in fact transform into an Asian Monetary Fund which will work in a subsidiary position to the IMF.

This was covered last August in the post Meet the Asian Monetary Fund.

And before closing off this quick Friday post I’d like to comment on something which is causing a lot of misunderstanding and confusion.  The start of China’s gold fix.  As I have always stated, this gold fix, along with the upcoming RMB denominated crude benchmark, have everything to do with the internationalization of the renminbi and nothing to do with overthrowing the dollar or western bankers.

I have received many questions from readers about this.  Some even suggest that the whole POM thesis is wrong because China is about to change everything.  How so many still believe the absurd theories which come from so many “reputable” analyst’s and financial writers is one of the great mysteries of our time.

Long-time reader and commentator SpeedSpirit took the liberty of providing a response to some of these questions by posting a recent quote from Martin Armstrong.  Giving credit where credit is due, Armstrong nailed the absurdity of it in this quote.  I couldn’t have said it better.  – JC

“Next week, China will begin its competition with London & New York and attempt to create the equivalent of the London gold fix but in Chinese yuan on April 19th. Of course the gold bugs are misrepresenting this as some dollar killer. Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China’s biggest step towards making the yuan convertible. By creating a yuan based gold fix, this is a back-door to floating the yuan itself. It will allow for arbitrage in currency so you can go long or short gold in dollars and the opposite in yuan and you have then created a yuan contract.”

“For years, these people spinning stories such as how “paper gold” was evil, failed completely to comprehend how the market even functions. OPEC nations who could not earn interest religiously, bought gold and then sold it forward. They were not interested in gold, it was the means to earn interest without calling it interest. This is what gave gold the liquidity that other commodities did not. It was an interest play for decades. Creating a yuan based gold fix is once again not about gold but about a test for floating the yuan. Sophisticated players will use this for the currency and China will monitor the trading as a test case for floating the currency. This is the small step forward. China has to float its currency or it will NEVER make it to the big leagues. Capital has to freely be able to move in and out without applying for permission to enter and leave.”

“So now these people spinning this story show their ignorance. They say no dollars allowed, as if this is some war that will destroy the dollar. China dollar reserves are over $3 trillion. Why would they try to make those reserves worthless? If they wanted to hurt the dollar, then convert the $3 trillion into something else. But what? Rubles? Gold is not easily transportable for international settlements among nations and are such is such a tiny fraction of world capital flows (less than 1%), that converting it gold would isolate their economy. These claims only reveal their lack of comprehension of how the economy even functions.”