An AIIB quandary: What to concede?
On July 1, 1944, ahead of the Normandy landings by the Allies, what economists call the “Battle of Bretton Woods” was taking place across the Atlantic Ocean. Delegates from 44 nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. They were about to establish the post-World War II international monetary and financial order. Two men led the discussion, British economist John Maynard Keynes and Harry Dexter White, an American economist and adviser to Franklin D. Roosevelt.
Keynes represented the declining empire of the pound sterling and White the rise of the U.S. dollar. The United States was already the world’s biggest creditor. Great Britain and the Soviet Union would have struggled to continue the war without U.S. assistance. Back then, U.S. power was far greater than the influence China enjoys today.
The United States was a formidable counterpart to Keynes. However, he dominated the conference with economic insight, cornering White with his signature style of biting remarks. But historians see Keynes as more of a ruined aristocrat making one last stand. British author Benn Steil wrote in his 2013 book “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the Making of a New World Order” that the debate between Keynes and White was a battle that almost ended the conference several times.
But the conference continued, and the Bretton Woods system defining a post-war monetary order was prepared. Just as White intended, the dollar became the world’s economic sun, with European currencies orbiting it like planets.
However, White did not monopolize the spoils of war. Keynes’ ideas can be found in many dynamics of the Bretton Woods system. The post of the IMF president was offered to Europe, even though the United States was the biggest stakeholder.
More than 70 years later, another battle is brewing over the stakes and management of the Asia Infrastructure Investment Bank (AIIB) proposed by China. With only the United States remaining reluctant to participate, China seems to have won the first round.
Now the main event is to begin. Until it starts operating later this year, the AIIB battle will be fought over management structure. If the United States participates, it could counter the emerging power, China, using know-how accumulated from decades of hegemony. It is reminiscent of Keynes’s outstanding economic insight overshadowing White 70 years ago. China needs to decide what it can concede. How about taking a cue from Whit at Bretton Woods and offering up the post of the AIIB president?
The author is the deputy international business news editor of the JoongAng Ilbo. JoongAng Ilbo, April 13, Page 30
by KANG NAM-GYUE