China-led Asian Infrastructure Investment Bank (AIIB) is planning to launch a local currency financing in India and some other Asian nations. AIIB backed currency can minimise the cross-border investment risks caused by exchange rate fluctuations.
The AIIB President Jin Liqun said: “the first group of countries to have this new service could include India, Indonesia, and Pakistan”.
The local currency used for cross-border financing is a service usually provided by multilateral development organisations to hedge against foreign exchange-rate risks resulting from the settlement in US dollars.
Mr. Jin said that there is a concern for sustainable infrastructure because of a rise in debt financing costs as a result of the rapid increase in interest rates and trade tensions causing cross-border investment uncertainties.
The AIIB, which provides multilateral regional financing and investment platform for infrastructure development, decided to expand project investment to USD four billion in 2019 in Asia and other countries.
A recent AIIB report said: “Recent currency volatility in emerging markets is a cause for concern. It is likely to lead to delays in projects, weakening the outlook for the project pipeline.”
With authorised capital of USD 100 billion, China is the largest shareholder with 26.06 per cent voting shares in the AIIB. While India is the second largest shareholder with 7.5 percent followed by Russia with 5.93 percent and Germany with 4.5 percent. The bank has already given close to a USD billion investment loans towards various projects in India.
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