How AIIB’s Local-Currency Lending & China’s Alternative to SWIFT Help Flee the Dollar
- How AIIB’s Local-Currency Lending & China’s Alternative to SWIFT Help Flee the Dollar
by Ekaterina Blinova, https://sputniknews.com/
The China-based Asian Infrastructure Investment Bank (AIIB) has shifted to lending in national currencies in order to reduce the negative impact of the US-driven trade war. The initiative could be boosted by the emergence of Beijing’s alternative to SWIFT, largely regarded as a challenge to the dollar’s dominance.
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In July 2019, the Asian Infrastructure Investment Bank (AIIB) started offering local-currency financing to private companies in India, Indonesia, Thailand, Turkey and Russia.
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“The AIIB’s offer meets the financing needs of local companies at a time when they are feeling increasingly insecure about the US dollar, as the Trump administration often imposes financial sanctions on other countries”, Global Times, a daily Chinese newspaper outlined on 17 July.
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The China-based bank announced its plan to kick off local currency lending in order to diminish cross-border investment risks triggered by exchange-rate fluctuations in January 2019, citing “recent currency volatility in emerging markets”, trade disputes sparked by Washington and potential global economic slowdown.
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The AIIB was founded in order to facilitate the financing of infrastructure projects and to ensure the development of the Asia-Pacific Region within the framework of the China-led One Belt and One Road (OBOR) initiative. While the two endeavours are not formally associated, the AIIB and OBOR are complementary.
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AIIB’s Measure ‘Must Inevitably Have an Impact on Dollar’s Positions’
“This is a very timely initiative as many countries urgently need finance for their infrastructure development but are worried about currency fluctuations, e.g. the likelihood of a rise in the value of the US dollar. They are worried that such a rise would make it difficult for them to repay loans contracted in dollars”, explains Donald Gasper, an independent Hong Kong-based analyst.
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Gasper recalled the Asian financial crisis of 1997 that was partially triggered by the problems faced by Thailand and other countries in repaying loans denominated in the US dollar. The crisis started with the collapse of the Thai national currency, the baht, after the country’s government was forced to float it due to a lack of foreign currency. The domino effect of the baht’s slump affected much of East Asia and Southeast Asia at the time.
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