AIIB offers local-currency funding to private sector

The Asian Infrastructure Investment Bank (AIIB) will start this month to offer local-currency financing to private-sector clients from India, Indonesia, Thailand, Turkey and Russia, the lender disclosed in a statement sent to the Global Times on Wednesday.

The AIIB's offer meets the financing needs of local companies at a time when they are feeling increasingly insecure about the US dollar, as the Trump administration often imposes financial sanctions on other countries, an expert said.

The rollout of local-currency financing will begin this month, with other currencies to be added according to client needs and priorities, the China-proposed investment bank revealed in the email.

"Offering financing alternatives in local currencies will help the AIIB's private-sector clients hedge against volatile foreign exchange markets ...When clients secure funding in their local currency, they are better equipped to manage and grow sustainable businesses, thereby becoming stronger credit for AIIB's loan portfolio," an AIIB senior press officer told the Global Times.

AIIB President Jin Liqun said recently during the AIIB's fourth annual meeting that the bank's local-currency financing decision was born to meet the needs of emerging economies, thepaper.cn reported.

The AIIB's local-currency financing offer comes at a time when many countries are feeling insecure about the US dollar, particularly as the Trump government often uses financial sanctions as a means of political punishment.

In June, US Treasury Secretary Steven Mnuchin said the US government would launch measures to freeze billions of dollars in Iranian assets.

"The Trump administration's trade protectionism and financial hegemony are damaging the greenback's international reputation, as countries are taking action to depeg their currencies from the US dollar," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Wednesday.

"The AIIB's local-currency financing offer helps countries to shake off their dependence on the US dollar and avoid possible exchange rate risks - that's why the proposal is welcomed among local economies," he said.

Of the five countries where the AIIB will offer local-currency financing soon, Russia and Turkey have already withdrawn from the list of major US government bond holders.

In 2018, the value of the Turkish lira nosedived against the US dollar, causing alarm not only in the country but on global financial markets.

In the fourth quarter of 2018, the US dollar's share of global foreign exchange reserves dropped to about 61 percent, the lowest since 2013, data from the International Monetary Fund showed.

The US Fed's move to further cut interest rates would also weaken the US dollar's position as the dominant international currency, Zhou said.

In comparison, the yuan had a share of about 1.9 percent of global foreign exchange reserves by the end of 2018.

"There's still a long way to go for the yuan to challenge the US dollar's dominance, but the yuan is slowly gaining. In the future, there is room for the yuan to increase its internationalization level as China's economy stabilizes," Zhou commented.