BRICS: The World's New Banker?

December 5, 2012

Brazil, Russia, India, China and South Africa (BRICS) have started to plan their own development bank, as well as a bailout fund to help many countries around the world. This is done in response to the growing dissatisfaction of Western banking institutions like the World Bank and the International Monetary Fund (IMF), says The Diplomat.

  • BRICS countries only have a combined 11 percent of the IMF's voting share.
  • A country like the United States, by contrast, has 16.75 percent of the voting share, allowing it to veto any major decisions.
  • The BRICS development bank and bailout fund will be created by pooling around $240 billion in foreign exchange reserves.
  • This fund will be larger than the combined gross domestic product (GDP) of 150 countries.

After first being discussed in March during a BRICS summit in New Delhi, the new institutions are set to be formally established at the next BRICS summit in March 2013.

The BRICS bank could fund projects that the World Bank does not, such as biofuels, large dams and nuclear power plants, which don't benefit from World Bank funding because they don't meet certain environmental standards.

Current institutions like the World Bank, IMF, and the European Bank for Reconstruction and Development often provide loans with conditions. However, the development bank that the BRICS seek to create will offer non-conditional loans. The most likely result of these new institutions is the enhanced influence that BRICS countries will have among many countries around the world.

One potential problem is that the BRICS have not decided what currency to use for the mutual fund and development bank. China has been keen on boosting the international status of its currency by trying to add the yuan to the Special Drawing Rights (SDR) -- the IMF's international reserve asset based on different currencies -- and may push to make it the currency of the new institutions. However, other member states are likely to push for the U.S. dollar or the IMF's SDR.

Source: "BRICS: The World's New Banker?" The Diplomat, November 27, 2012.

 

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