That said, international public opinion is very surprised that despite the U.S. warning not to share the Chinese initiative, many European countries have chosen apply for membership before the end of March deadline. Indeed, the European countries are traditional financial powers and they do not want to miss the Asian growth train.

By participating in the infrastructure investment bank, European countries can not only benefit financially, but also gain access to the huge market of infrastructure construction in Asia. Moreover, the participation of European countries gave more credibility to the new bank, which could lower the cost of financing, if she wanted to start borrowing on the international capital market. So it is a win-win situation.

More and more voices are rising within the U.S., criticizing the U.S. government’s position with regard to AIIB, and urging it to change its position and join the AIIB, even if only for improving the AIIB’s operations.

Although China does not claim to want to compete with the Bretton Woods system, by creating the Asian Infrastructure Investment Bank, and pretend only to supplement the existing international financial institutions, some commentators have pointed out that the new bank would have a “catfish effect” in the current international financial system. The legend goes that in Norway, live sardines are several times more expensive than frozen ones, and are valued for better texture and flavor. But only one ship could bring live sardine home, and the shipmaster kept his method a secret. After he died, people found that there was one catfish in the tank. The catfish is a carnivorous fish, as it keeps swimming, and the sardines try to avoid this predator, that makes sardines more active so that they can survive the long journey. The “catfish effect” is used to describe a situation where a strong competitor might cause the weak to better themselves. The creation of AIIB would force other international institutions, such as the World Bank, regional development banks, etc, to become more competitive and more efficient, which would also be a good thing for global governance.

Ding Yifan, Deputy Director, Research Institute of World Development, China Development Research Center (DRC).

This article was first published at Chinausfocus.com To see the original version please visit http://www.chinausfocus.com/finance-economy/the-catfish-effect-in-the-international-financial-system/

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