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China Steps In as World's New Bank

OWoN: Why would China care about anything else other than loyalty, after all it has been the practice of the West to do just as much while they had the funds to do so. Now that the well is run dry the door is wide open to China to fill the void the West cannot fill. Big changes will come and allegiances follow money.

What work is left for the IMF? Image: Adam Berry / Getty Images

China Steps In as World's New Bank

Bloomberg View
By William Pesek
25 December 2014

Thanks to China, Christine Lagarde of the International Monetary Fund, Jim Yong Kim of the World Bank and Takehiko Nakao of the Asian Development Bank may no longer have much meaningful work to do.

Beijing's move to bail out Russia, on top of its recent aid for Venezuela and Argentina, signals the death of the post-war Bretton Woods world. It’s also marks the beginning of the end for America's linchpin role in the global economy and Japan's influence in Asia.

What is China's new Asian Infrastructure Investment Bank if not an ADB killer? If Japan, ADB's main benefactor, won't share the presidency with Asian peers, Beijing will just use its deep pockets to overpower it. Lagarde's and Kim’s shops also are looking at a future in which crisis-wracked governments call Beijing before Washington.

China stepping up its role as lender of last resort upends an economic development game that's been decades in the making. The IMF, World Bank and ADB are bloated, change-adverse institutions. When Ukraine received a $17 billion IMF-led bailout this year it was about shoring up a geopolitically important economy, not geopolitical blackmail.

Chinese President Xi Jinping's government doesn't care about upgrading economies, the health of tax regimes or central bank reserves. It cares about loyalty. The quid pro quo: For our generous assistance we expect your full support on everything from Taiwan to territorial disputes to deadening the West’s pesky focus on human rights.

This may sound hyperbolic; Russia, Argentina and Venezuela are already at odds with the U.S. and its allies. But what about Europe? In 2011 and 2012, it looked to Beijing to save euro bond markets through massive purchases. Expect more of this dynamic in 2015 should fresh turmoil hit the euro zone, at which time Beijing will expect European leaders to pull their diplomatic punches. What happens if the Federal Reserve’s tapering slams economies from India to Indonesia and governments look to China for help? Why would Cambodia, Laos or Vietnam bother with the IMF’s conditions when China writes big checks with few strings attached?

Beijing’s $24 billion currency swap program to help Russia is a sign of things to come. Russia, it's often said, is too nuclear to fail. As Moscow weathers the worst crisis since the 1998 default, it’s tempting to view China as a good global citizen. But Beijing is just enabling President Vladimir Putin, who’s now under zero pressure to diversify his economy away from oil. The same goes for China’s $2.3 billion currency swap with Argentina and its $4 billion loan to Venezuela. In the Chinese century, bad behavior has its rewards.

If ever there were a time for President Barack Obama to accelerate his "pivot" to Asia it's now. There's plenty to worry about as China tosses money at rogue governments like Sudan and Zimbabwe. But there’s also lots at stake for Asia's budding democracies. The so-called Washington consensus on economic policies isn't perfect, but is Beijing's model of autocratic state capitalism with scant press freedom really a better option? With China becoming Asia's sugar daddy, the temptation in, say, Myanmar might be to avoid the difficult process of creating credible institutions to oversee the economy.

There could be a silver lining to China lavishing its nearly $4 trillion of currency reserves on crisis-plagued nations: It might force the IMF, World Bank and ADB to raise their games. Competition, as Lagarde, Kim and Nakao would agree, is a good thing. But more likely, China's largess will encourage bad policy habits and impede development in ways that leave the global economy worse off.



  1. What a shill. The old 'China is bad, US is good meme'. The journo really has no idea of the deeper nuances.

    The smart move is to position according to the reality, not ideology. I expect his wealth will take a hit in short order. That's the price of 'freedom' these days. More than anything else this piece is a study in indoctrination.

  2. Russia-n SWIFT, BRICS Bank, China defends ruble: Revolt has begun. Independence from West’s global financial slavery, blackmail at hand

    Central Bank of Russia has launched new SWIFT payment service, moving away from USD Western financial dominance..IN OPERATION NOW

    The Central Bank of Russia (CBR) has launched a new SWIFT-style payment service aimed at moving away from Western financial dominance. The system is already operating, and will be fully functional within six months.
    “The new service was launched in order to ensure smooth and safe transmission of financial messaging within the country, and is another step towards improving the system of services provided by the Bank of Russia,” said the bank statement Friday.

    The regulator said the new service will allow credit institutions to transmit messages in a SWIFT format through CBR to all Russia’s regions without restrictions.

    China Offers Russia Ruble Help
    BEIJING–China says it is willing to provide assistance to Russia following recent sharp drops in the value of its currency, said a senior official, as President Vladimir Putin’s regime faces continuing strains with the U.S. and Europe.
    Read more:

    BRICS New Development Bank Threatens Hegemony Of U.S. Dollar
    At the 2014 BRICS summit in Fortaleza, Brazil, the committee announced its impatience with failed reform within the International Monetary Fund: “We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness.” Leaders of the emerging economies of Brazil, Russia, India, China and South Africa (BRICS) have expressed the need for reform in the Bretton Woods institutions. Collectively, BRICS account for nearly $16 trillion in GDP and 40% of the world’s population. These countries have drafted amendments to the IMF’s voting policy and have yet to receive a sufficient number of votes. At the summit, Brazilian President Dilma Rousseff stated the BRICS nations “are among the largest in the world and cannot content themselves in the middle of the 21st century with any kind of dependency.” Last June, Sergey Glazyev, Vladimir Putin’s chief economic advisor, published an article outlining the need for an international anti-dollar alliance. He called upon allies to eliminate the dollarfrom international trade and trend toward depleting them from currency reserves. Recent dollar-less BRICS energy deals, currency swaps and foreign direct investment indicate that trend is taking place.

    This year’s summit marks the establishment of a $100 billion dollar liquidity reserve and a $50 billion New Development Bank (NBD) in Shanghai. As each country acts to maximize its own utility, the emerging economies of the BRICS nations will create a paralleling international financial system ultimately challenging the hegemony of the current western-dominated system.

    A couple more nails in the petrodollar’s coffin, courtesy of Turkey, India and Russia
    tl:dr; Russia and Turkey agreed to work alongside representatives of the business communities to identify possible obstacles for conducting payments in their national currencies. Meanwhile Indian Ambassador to Moscow states transition to national currencies, the rupee and ruble, in trade between India and Russia will significantly increase bilateral trade.


  3. Putin's Ace In The Hole - Changing The Rules

    I ran across a couple outstanding articles, one at Zero Hedge, another at King World News, along with AMTV's video on "The Real Reason The US Is Targeting Russia," forms the big picture as a former White House official tells KWN that the US is already at war with Russia and China, and Zero Hedge explains how Russian President Vladimir Putin can play his "ace in the hole" and change the rules in a war strategy that the US has played before.

    Two steps are needed in order for Russia to play that ace-in-hole, neither one of them involve typical weapons of warfare:

    First, Russia should join with China in a new gold, oil and natural resource backed monetary union as an alternative to the failed debt democracy model pushed by Wall Street, the central bank cartel and self-serving politicians in the West.

    This move is already being implemented by Russia, explained yesterday in an article at ANP titled "The World Changes on Monday, December 29, 2014," where we learn that China has announced the launch of Yaun trading with Russian Rubles, set to begin on Monday, December 29, 2014.

    Second, Russia should act offensively rather than defensively on the financial front by creating corporate tax-free/low income tax zones and welcoming corporations, successful individuals and entrepreneurs to take up residence and create jobs and prosperity.

    Vladimir Putin is quite aware of exactly what is going on as evidenced by his statement last week where he said "They won't leave [the bear] alone. They will always seek to chain it. And once it's chained, they'll rip out its teeth and claws. The nuclear deterrence, speaking in present-day terms. As soon as this happens, nobody will need [the bear] anymore. They'll stuff it. And start to put their hands on its Taiga [Siberian forest belt] after it. We've heard statements from Western officials that Russia's owning Siberia was not fair."

  4. The west will be left with paper, while the east will hold the metal….The existing social order will be swept away in a tsunami of consequences



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