Exclusive | China-backed infrastructure bank AIIB to start local currency financing amid trade war, forex concerns

The Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) will soon conduct financing activity in local currencies, in response to significant demand from member countries amid an escalating trade war between China and the United States and related uncertainties, it said on Monday.

“From the second half of this year, we are going to start piloting local currency financing, in currencies such as the Indian rupee and the Indonesian rupiah, for example,” Danny Alexander, the bank’s vice-president and former chief secretary of the UK Treasury, said in Hong Kong.

The trade war has raised concerns about currency fluctuations and related risks because of exposure to US dollar-denominated loans.

“This is a reasonable move for AIIB, carrying significance that is both financial and political,” said Zhou Hao, an economist at Commerzbank.

“The structure of a loan is essentially decided by the borrower. For a multinational company, it may want US dollar loans as needs it for international procurement. But for a local contractor, it may want local currency loans as the payment will be mainly in the region, and the return it receives will also be in local currency,” he said.

The US dollar overwhelming dominates cross-border payments, but the AIIB is exploring diversification, Zhou said.