BRICS: $100 Billion Development Bank Launched
BRICS: $100 Billion Development Bank Launched
World leaders of BRICS emerging market nations have launched a $100 billion development bank and a currency reserve pool in the most basic step towards reshaping the international financial system. This is welcome news given the domination of the Western world in the global financial systems. The bank also aims at financing infrastructure projects in developing nations is to be based in Shanghai and India will commence with operations for the first 5 years. This is to be followed by Brazil and Russia, according to announcements made by the 5 country group in the summit.
A $100 billion currency reserves pool has also been set up to enable countries to forestall short-term liquidity pressures. The newly established bank will be referred to as the New Development Bank. This is a massive triumph for the BRICS countries Brazil, Russia, South Africa, China and India since this international body got together to press for more say in the global financial order created by Western powers following WWII. So far, only the International Monetary Fund and the World Bank were responsible for the financing of governments and nations worldwide.
The BRICS nations have met to seek coordinated action resulting from the capital exodus from emerging markets in the past year. This has been triggered by the scaling bank of US monetary stimulus. With so much at stake and not just in the monetary sense, BRICS have taken just the right step in forming the development bank.
The growing influence of the BRICS is a cause for celebration as almost half of the global population and one-fifth of the global economic output are from here. The bank will commence with a subscribed capital of $50 billion which can be divided equally between 5 founders with a total of $10 billion in cash for a period of 7 years and $40 billion in guarantees.
Lending will commence from 2016 and be open to membership of other nations. Capital share of the BRICS nations cannot drop below 55%. The contingency currency pool will be held in reserves for each of the BRICS nations and shift can be made to another member to cushion balance-of-payments difficulties. The initiative has gained in momentum following reverse of the flows of cheap dollars fuelling a boom in emerging markets for a period of 10 years.
The first president of the BRICS's bank will be from India. Tapering of the US monetary expansion policy has led to many changes in the state of volatility faced by diverse economies, according to Brazilian President Dilma Roussef. Sign of times demand reform of the IMF, she said. China has proved to be an asset to BRICS. The holder of the world's largest foreign exchange reserves will contribute most of the contingency currency pool or $41 billion. South Africa will contribute $5 billion and Brazil, India and Russia will add $18 billion each.
This historic summit is proving to be a boon for India and the rest of the nations in this group. With a development bank to bank upon, BRICS nations can look to positive developments in the future.
