While Beijing's Asian Infrastructure Investment Bank (AIIB) has won overwhelming support (to the surprise of many, including China itself), another bank headquartered in China seems to be flying under the world's radar.
Few people have heard of the BRICS New Development Bank (NDB). This was the strong impression I got after visiting Washington, Sydney and Canberra over the last couple of months.
The NDB idea was proposed in 2011 by the Nobel Laureate Joseph Stiglitz, and it initially encountered the same cynicism as the AIIB. The five BRICS countries (Brazil, Russia, India, China, South Africa) were not deterred, however, and finally converted intention into reality in 2014. Progress on the NDB inspired the AIIB initiative intellectually, and also provided some momentum for the AIIB's launch in 2013.
The relative lack of attention given to the NDB compared to the AIIB is understandable. Geopolitically, the AIIB is about the China-U.S. relationship, the most important bilateral relationship in the Asia-Pacific and perhaps the world. However, it would be a mistake to assume that the NDB's slower progress is a signal that there is no place for it.
The BRICS countries share a common interest in 'rebalancing' the international financial system – getting their money back from the Western banking system to finance their own infrastructure and development, and enhancing the resilience of their financial systems. It is these common interests that drove the NDB project, notwithstanding the fundamental differences between its five members.
South-South cooperation remains an important step for more balanced global economic development, where the NDB will be relevant. In addition, the NDB can play a role in geographic regions that the AIIB will not focus on, such as Africa.
The real issue now is how to make NDB a success. So far, it is moving ahead in stages.
Kundapur Vaman Kamath, the most prominent private banker in India, has been nominated as the first president. This is good news, not only because Kamath was considered the least controversial candidate but also because his identity can send a message to the world that the NDB is to be managed as a bank rather than maneuvered as a diplomatic instrument. Russia may want the NDB to serve its geopolitical interests, as indicated by the fact that it has invited Greece to become the sixth member, but this proposal will not be accepted by the other BRICS countries.
Undoubtedly the strongest support for the NDB will come from China, despite the fact that it has the same formal decision-making power as the other four BRICS countries.
Within China, the NDB is seen as one package with the AIIB, and both banks are still at the preparatory stage. The Shanghai municipal government has given strong support to the NDB as the first international organisation headquartered in Shanghai and the first international financial organisation headquartered in China. The NDB is expected to help strengthen efforts to build up Shanghai as an international financial centre. What the Chinese and Shanghainese governments should provide is more entrepreneurship and intellectual leadership in defining the mandate of the bank. The fact that all the BRICS countries are now founding members of the AIIB could also help the NDB develop a consistent and complementary relationship with that organisation.
It is neither surprising nor necessarily a bad thing that the NDB is going unnoticed. After all, the world's largest multilateral development bank, the European Investment Bank, has a low profile too.
This piece first appeared in The Lowy Interpreter here.
Image: Creative Commons 3.0.