BRICS Nations Plan Development Bank

Written by Allen Lee ’16

bricsLast Tuesday the nations of Brazil, Russia, India, China, and South Africa (BRICS) met in Durban, South Africa, to discuss the formation of a new development bank to increase their influence in the global financial system. The bank would fund infrastructure and development projects in developing nations, as well as set up a $100 billion currency crisis fund. However, some basic issues remain undetermined.

The development bank will consist of $50 billion in capital shared equally between the five nations. There were initial considerations to have contributed capital based on the size of the nation’s economy. However, such a policy would put China in perhaps too much of a dominant position. These nations argue that the World Bank and International Monetary Fund are not doing enough to address underdevelopment, as many have accused the Western governments of not managing these institutions well enough. Experts believe competition between these banks could get interesting.

Despite successful talks, the BRICS development bank will not be operating for some time, as they will need to solidify their methods in accumulating capital and resolve further issues, such as the location of the bank. These countries, which have conflicting priorities, will also need to agree upon shared goals. Although these countries have divergent economies, disparate foreign policy, and differing governments, leaders are confident that they will find success in the bank. China’s President believes that agreement on these issues “will further unlock potential cooperation. BRICS cooperation will help stabilize global economic governance.”

Back in 2001, Jim O’Neill, Goldman Sachs Asset Management Chairman, coined the BRIC term. The four countries then invited South Africa to join their ranks in December 2010. The BRICS nations have 43% of the world’s population, 17% of world trade, and hold $4.4 trillion of total foreign currency reserves. Trade between this group has grown from $27 billion in 2002 to $282 billion in 2012. Through the Chiang Mai Initiative, the currency crisis fund will provide Japan, China, South Korea, and ten other Southeast Asian nations access to $240 billion of emergency liquidity to protect the region from global financial shocks. Once further technicalities are arranged, this will become the first formal institution of the BRICS group.

Although the plans are yet to be solidified, the BRICS nations have indicated they are willing to work together to wield wide influence. Such specifics aren’t as important as the general message these nations are sending to the financial world.

Sources:

http://www.bbc.co.uk/news/business-21951160

http://www.nytimes.com/2013/03/27/world/africa/brics-to-form-development-bank.html?_r=0

http://www.washingtonpost.com/business/brics-nations-plan-development-bank-to-build-massive-infrastructure-challenge-to-world-bank/2013/03/27/3c5673ec-96c4-11e2-a976-7eb906f9ed9b_story.html

http://www.economist.com/blogs/newsbook/2013/03/brics-summit

http://www.bloomberg.com/news/2013-03-27/brics-approve-currency-fund-as-bank-start-up-stalls.html

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