Alternative Multilateral Development Banks and Global Financial Governance

What impact will the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB), two multilateral banks created in 2014 outside the established Bretton Woods system, have on multilateral lending shares in the future? Will these new institutions led by China and the BRICS grouping of China, Brazil, India, Russia and South Africa help rebalance multilateral development finance away from Western dominance? The answer depends on three factors. First of all, the pressure for the BRICS to "exit" rises with past, present and expected failure of "voice" reform in the established international financial institutions (IFIs). Second, excess demand for multilateral soft loans and, third, the potential lending capacity by the NDB and AIIB are quantified to assess how much relative business - hence political influence - the existing IFIs might lose to the new competitors. It is estimated that the NDB and the AIIB combined will attract sufficient co-financing to rival the established multilateral development banks (MDBs) in annual lending. This article concludes that infrastructure finance will benefit from the creation of the NDB and the AIIB by tapping the considerable saving potential in China and other BRICS countries. The new institutions should therefore be supported, not discouraged, by western governments and donors as well. As the new MDBs introduce choice for potential borrowers in terms of funding cost and modalities, they are well advised to join these new institutions rapidly for their own benefit. Competition in multilateral development banking may have a negative impact on loan enforcement mechanisms. The IFIs of the existing Bretton Woods system and the new development banks will have to unite by imposing cross-default clauses to safeguard their preferred creditor status.