Highlights of NDB and BRICS Contingent Reserve Arrangement

Highlights of NDB and BRICS Contingent Reserve Arrangement

Question - Recently, the intervention by the FM indicated developmental agenda will not be derailed. Discuss the highlights of the New Development Bank/NDB and BRICS Contingent Reserve Arrangement/CRA.

New Development Bank : Highlights

• New Development Bank is for mobilising resources for infrastructure and sustainable development projects in BRICS as well as other emerging economies and developing nations

• NDB aims at supplementing current efforts of multilateral and regional finance institutions for international growth and development

• The bank works for India and other signatory nations to raise and avail resources for infrastructure and sustainable development projects

• It will also provide a powerful instrument for economic cooperation

Functions of NDB

• Utilising resources at disposal for supporting infrastructure and sustainable development projects, whether public or private in BRICS as well as other emerging economies through financial instruments such as loans, guarantees etc

• Cooperate within mandate with international organisations and national entities, public or private and global financial institutions

• To assist technically in fields of infrastructure and sustainable development

• Support infrastructure and sustainable development projects in more than one nation

• Entrusted with administration of Special Funds for this purpose

About NDB

• Bank is headquartered in Shanghai, Beijing

• It will establish regional offices needed for performance of functions

• Founding members of the bank: Federative Republic of Brazil, Russian Federation, Republic of India, People’s Republic of China, Republic of South Africa

• Membership of the bank will be open to borrowing as well as non borrowing members and members of UN

• Countries wanting to be members must be observers first

• Voting power of each member is equivalent to subscribed shares in capital stock of the Bank

• All matters regarding NDB have to be decided through simple majority of votes casted; in certain circumstances, special majority may be used

• Voting in Board of Governors shall entitle each governor to cast a vote for his member country

• Each director shall be casting the vote counted towards his election; votes need not be cast as a unit

• Initial authorised capital of the bank will be one hundred billion dollars. It will be divided into one million shares, each with par value of hundred thousand dollars

• Initial subscribed capital of the bank will be fifty billion dollars divided into paid up shares and callable shares

• Shares with an aggregate par value of 10 billion dollars shall be in paid up shares

• Shares having aggregate par value of 40 billion dollars will be callable shares

• Increase in authorised and subscribed capital stock of the bank as well as proportion to be paid in share and callable shares is to be decided by the Board of Governors

• The capital stock of the bank will be reviewed at intervals of not more than 5 years by the Board of Governors

BRICS CRA

• BRICS CRA has proposed a short term liquidity support for members through currency swaps to mitigate BOP crisis

• BRICS CRA will also help nations to forestall short term liquidity pressures and provide mutual support

• It will also strengthen financial stability and provide an international financial safety net

• It will complement existing arrangements from IMF as additional line of defence

• Agreement will enter into force only after member countries deposit instruments of ratification with Brazil

• Central banks of member nations will also finalise Inter Central Bank Agreement

Facts and Stats

• Signing of the agreement for the NDB will help member nations to raise resources for infrastructure development

• So far in India, infrastructure development financing has been done through the government and existing multilateral development banks

• Private sector through PPP has also helped

• Declining resources of MDBs and risk averse private sector are the reasons why BRICS nations will benefit from NDB

• BRICS CRA will serve needs of emerging economies and be a financial safety net