Facilitating renminbi internationalization
The NDB is the first international financial institution headquartered in China, but it doesn’t mean it is Chinese-dominated, according to Maasdorp. “Shanghai is chosen because it is a major financial center and will attract global focus in financial terms,” he said. In fact, the bank works on an equal-share voting basis with each of the five signatories contributing $10 billion to its $50-billion initial capital.
Fan Yongming, Director of the Center of BRICS Countries Studies of Fudan University, believes such an arrangement will give developing countries’ a louder voice in international monetary and financial systems and bring in a diversified international monetary system.
“The establishment of the NDB will facilitate internationalization of China’s renminbi by offering a platform for the currency circulation,” said Fan. He explained that the NDB issues bonds in the international financial market besides absorbing deposits to raise funds. “With renminbi-dominated bonds being bought by global investors on a large scale, the process of currency internationalization is advanced,” said Fan.
In the future, the NDB will also offer services as general commercial banks do, like trade settlement, besides supporting development projects with low interest rate loans. “Enlarging the share of renminbi in settling international trade transactions is also an important aspect of accelerating the process of its internationalization,” said Fan.
He added that the NDB is not replacing current international or regional funding institutions but rather compliments them and helps push forward reforms of established international financial mechanisms. “The NDB and other institutions are more partners than competitors,” he said. “It is such cooperation and competition that advances reforms on current mechanisms and brings emerging economies to the attention of established financial institutions.” Comments to firstname.lastname@example.org