Editor's Note: Bian Yongzu is deputy director of the Department of Industry, Chongyang Institute for Financial Studies, Renmin University of China. The article reflects the author's opinion, and not necessarily the views of CGTN.

With the latest accession of six prospective members, the total number of AIIB members has expanded to 93. This is a remarkable result for a 3-year-old multilateral cooperation agency, which is the first to be set up under the leadership of developing countries.

AIIB: High-standard multilateral development bank

In 2018, AIIB approved about 3.3 billion US dollars. It finances projects in 13 countries of six regions, including East Asia, Southeast Asia, South Asia, Central Asia, West Asia and Africa, covering many fields such as transportation, energy, telecommunications and urban development.

More importantly, all kinds of public and private capital have been leveraged by loans from the AIIB. Up to now, more than 7.5 billion U.S. dollars have been invested in approved projects, leveraging a total investment of 35 billion dollars. This has filled the gap in infrastructure financing in developing countries.

AIIB: An important complement to the current system

For a long time, the excessive financial tools used by Western developed countries have exacerbated the imbalance in the world economy. Since the financial crisis, central banks around the world have released huge liquidity and even adopted negative interest rates.

As the Federal Reserve enters the cycle of raising interest rates and as the ECB and Bank of Japan begin to downsize or wean off quantitative easing, the direction of global capital flows has gone on the reversal.

As a result, commodity prices and some economies have experienced great turbulence, and the international financial order has fallen into serious dysfunction.

Accelerating the reform of the international economic order is an important part of the structural reform of the world economy. Different from the Bretton Woods era, the U.S. dollar is no longer the only international currency. However, it remains the dominant one in many ways.

More than half of international transactions are settled in U.S. dollars. The U.S. dollar accounts for around 63 percent of foreign exchange reserves and 87 percent of foreign exchange transactions. This pattern fails to reflect the latest development in the world economy or the interests of emerging economies.

The establishment of the AIIB has precisely addressed this dilemma. It provides financial support to more developing countries and aids their infrastructure. In this way, the AIIB helps to promote local economic growth, improve people's livelihood and reduce their reliance on the IMF.

This will also enhance the status of member countries in the current system and help to correct the ongoing imbalance.

AIIB's mechanism innovation: A template for existing multilateral institutions

Unlike what the U.S. did to the World Bank, China has not sought veto power in the AIIB. On the contrary, China has made greater concessions to other countries, especially small countries.

According to the design rules, the AIIB's equity is distributed based on GDP, with Asian members accounting for 75 percent of the equity and countries outside Asia sharing the remaining 25 percent. Since the AIIB mainly invests in the interconnectivity of Asian infrastructures, its practice ensures that things are in the best interests of Asian countries.

In terms of the GDP-based equity distribution, China should have 30 percent of the shares. As 15 percent of the votes go to the founding members, China actually holds only 26.06 percent of the votes. Such a design allows countries with smaller GDPs to have relatively large voting power, thus taking care of the interests of more member states.

In order for all member states to have a say on AIIB's governance, three-quarters of the voting rights and two-thirds of the members' consent must be obtained in the choice of president. Although China currently has the veto power, with more members joining AIIB, China's voting power will continue to decline, probably to less than 25 percent.

The U.S. is acting the other way around. In order to guarantee its veto power at the IMF, the World Bank and other institutions, the United States does not hesitate to raise the bar for major issues to pass.

China, on the contrary, has made it clear that even if China's voting power drops, it will not raise the bar, clearly demonstrating AIIB's difference from the existing systems.

Therefore, the AIIB, as a multilateral financial institution, has made remarkable achievements in just three years. It meets the urgent needs of the world for development, pursues a fairer, more transparent and more inclusive system, and also rides on the global trend. All these factors are the fundamental reasons for its success.

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