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World Bank Chief announces support for Asia Investment Bank

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What's going on?

The U.S. appointed World Bank President Jim Yong Kim publicly announced his support for the Asian Infrastructure Investment Bank or AIIB, an international financial institution proposed by the Chinese government to provide financing and investment for infrastructure projects in Asia. Some view this as a rival to the IMF and World Bank. Over 50 countries including many in the EU have signed up to be members of the bank. The U.S. is one of the only countries opposed to the AIIB, and unsuccessfully tried to lobby its allies not to join, citing labor and environmental concerns. Many believe the U.S. does not support the AIIB because it means less influence for them in the region.

What does this mean?

Even the Chinese are surprised by the international interest and support for the AIIB, with over 50 countries applying for membership. This threatens to shift the balance of power in the region, giving China increased influence. World Bank President Dr. Kim called the AIIB a “potentially strong ally” for the World Bank and hoped the two can work together to benefit the world’s poor and to finance projects run by the world Bank, which would be subject to World Bank’s environmental, labor and social standards, alleviating one of the U.S.’s major concerns with the AIIB.

Why should I care?

Currently over $1-1.5 trillion per year is needed in additional investment in developing world infrastructure. Developing banks globally lack the resources to accomplish this level of investment. The AIIB offers a potential new source of investment for the developing world. This may create new investment opportunities for individuals such as the currency of the AIIB is still being decided but may be the Chinese Yuan, which is currently pegged to the U.S. Dollar but has appreciated in value over the past ten years. It is still relatively difficult for individual investors to invest in the Yuan on currency trading exchanges due to international regulation, but some opportunities have opened up in recent years. Buying the Yuan at its current low levels would be a good investment opportunity if it continues its trend of appreciating in value.
Originally posted as part of the Finimize daily email.

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