On July 15, 2014, the presidents of Brazil, Russia, India, China and South Africa formally agreed to found the New Development Bank (NDB), a new multilateral development bank. Three months later, in October 2014, China announced the founding of the Asian Infrastructure Investment Bank (AIIB), to be established by the end of 2015.
The launch of the NDB and AIIB have captured global attention and headlines and are generally considered emblematic of the rising strength of emerging countries and the parallel stagnation if not decline of the traditional western economic powers. The NDB and AIIB are seen by many as a direct challenge to the multilateral institutions of the post-war, Bretton Woods global financial order led by the World Bank, IMF and regional multilateral development banks.
Beyond the heated rhetoric and headlines, it is not certain how the NDB and AIIB will differ from existing development banks and how quickly they might become viable development institutions on a meaningful scale.
The rationale for their creation is clear—huge investment needs in infrastructure, an inability of major existing development finance institutions to substantially reform governance arrangements and a commitment by a group of emerging nations to work toward their own way to engage in multilateral development cooperation. The founders of the NDB and AIIB see continued relevance in the basic organisational model of a multilateral development bank, and are constructing two new ones for their purposes.
This paper highlights key issues related to finances and governance at the NDB and AIIB, in light of available evidence and the experiences of other multilateral development banks.
The aim is to stimulate new thinking among founding country negotiators on how to proceed with designing and operationalising the new banks, and to give others in the development community a sense of their characteristics and scope.
The paper is not intended to assess the geopolitical implications of the NDB and AIIB, but rather focuses on how the two banks might evolve as development finance institutions over the next decade.
