FORTALEZA, Brazil – Leaders of the BRICS emerging market nations launched a $100 billion development bank and a currency reserve pool in their first concrete step towards reshaping the Western-dominated international financial system.
The BRICS Development Bank aimed at funding infrastructure projects in developing nations will be based in Shanghai and India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-nation group announced at a summit. They also set up a $100 billion currency reserves pool to help countries forestall short-term liquidity pressures.
The long-awaited bank is the first major achievement of the BRICS countries since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War II. The BRICS were prompted to seek coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of US monetary stimulus.
“BRICS Bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said at the 6th BRICS summit in Fortaleza. The big launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both US-based institutions BRICS countries have little influence within.
“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said. Russia, Brazil, India, China and South Africa account for 11 per cent of global capital investment, and trade turnover almost doubled in the last 5 years, the president reminded. Each country will send either their finance minister or Central Bank chair to the bank’s representative board.
Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico, Indonesia, or Argentina, once it sorts out its debt burden. BRICS represents 42 per cent of the world’s population and roughly 20 per cent of the world’s economy based on GDP, and 30 per cent of the world’s GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 per cent of the world’s total.
The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion’s share, about $41 billion, Russia, Brazil and India will chip in $18 billion, and South Africa, the newest member of the economic bloc, will contribute $5 billion. The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.
Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can’t remain above international problems, said Brazil's President Dilma Rousseff. She cautioned the world not to see BRICS deals as a desire to dominate. “We want justice and equal rights,” she said. “The IMF should urgently revise distribution of voting rights to reflect the importance of emerging economies globally,” she said.