A New Global Financial Architecture-(Asian Infrastructure Investment Bank，AIIB)

As the pathways to a second Asian miracle are constructed, it is probably apparent by now that increased global liquidity—when financial leverage is properly targeted—fosters investment, reduces unemployment, and perceptibly augments the limited resources of the once towering World Bank. It should also be noteworthy that infrastructural advances come with social costs (externalities) that are not directly paid for by some financial intermediaries. Will investments be smart enough to minimize external costs and assuage fears of urbanization and its accompanying environmental degradation?

Economists will correctly argue that investments in capital must be undertaken when investments are susceptible to increasing rather than negative returns. That is, when the rates of return are positive, especially in capital-scarce countries. Yet, if the calculus of rates of return is misleading and social costs are beyond the mandate of financial architects, who will pay for the social costs that are facilitated by new financial architects? Will the World Bank be confronted with a new asymmetry of increasing responsibility and scarce resources when the beneficiaries of leverage are poorer countries?

Alternatively, will investors be smart enough to eliminate white elephant projects and social costs by engaging in critical countervailing acts that balance infrastructural development against the inevitable social costs of development. Organizations that lack supranational authority or a multiplicity of mandates face significant limitations and pose some social risks.

One thing is clear; the global economy is rapidly expanding and the global financial arrangements of the past (status quo) require extraordinary managerial acumen and compromise to deal with uneasy geopolitical tensions and illiquidity challenges.

Dr. Chao Yuang Shiang

18-April-2015