President Obama’s former National Economic Council director Lawrence H. Summers has commented on what’s been apparent to Asia Unhedged for the past few weeks: China’s ability to rally non-western and western nations behind its Asian Infrastructure Investment Bank  (AIIB) signals that the U.S. has toppled from its perch as the world’s lead underwriter.

” This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. True, there have been any number of periods of frustration for the US before, and times when American behaviour was hardly multilateralist, such as the 1971 Nixon shock, ending the convertibility of the dollar into gold. But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the US to persuade dozens of its traditional allies, starting with Britain, to stay out of it,” Summers said Sunday in a personal blog on larrysummers.com.

Lawrence Summers

Summers, who served as President Clinton’s Treasury Secretary, says the U.S. strategic and tactical blunder “was a long time in coming” and should spark a comprehensive overhaul of the way Uncle Sam approaches global economics. “With China’s economic size rivaling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment. Political pressures from all sides in the US have rendered it increasingly dysfunctional,” wrote Summers, who now serves as the Charles W. Eliot University Professor and President Emeritus at Harvard University.

“With US commitments unhonoured and US-backed policies blocking the kinds of finance other countries want to provide or receive through the existing institutions, the way was clear for China to establish the Asian Infrastructure Investment Bank,” Summers said.

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