Reshaping the financial architecture for development finance: the new development banks

In 2014 several groupings of developing countries agreed to set up a series of new multilateral development finance institutions. These include the BRICS-sponsored New Development Bank, the Asian Infrastructure Investment Bank and the Silk Road Fund. This paper examines the role these new institutions might play in reshaping the international financial architecture of development finance. A key concern of developing countries is the widening gap between the weight of developing countries’ GDP in the global economy and their voting rights in the IMF and World Bank governing structures. Unless substantial reforms are made to the distribution of voting rights, the asymmetry between the importance of developing countries to the world and their governance of the Bretton Woods institutions will continue to worsen, particularly for the Asian BRICS. Recognising that these new development finance initiatives can strengthen its political and economic ties with other developing countries, China has played a significant leadership role in launching these initiatives, and has become the key source of capital for the new institutions. However, a major challenge for these new institutions will be to craft governance structures and decision-making procedures that have a high degree of integrity, transparency and independence from political influence when making lending decisions.