By Gary Hirst
Leading politicians throughout BRICS—Brazil, Russia, India, China and South Africa—have agreed to fund a joint development bank as an alternative to the International Monetary Fund (IMF) and the World Bank. The leaders argue that this move will help them break free from the IMF and World Bank, which they say are unfairly dominated by rich countries and do not serve the interests of their clientele in poor or developing nations.
The new bank—to be headquartered in Shanghai—will give its members equal voting rights, unlike the World Bank and IMF, which assign voting power according to capitalization, giving richer countries significantly more power to set the agenda. It’s also a matter of leadership: by tradition the presidents of the World Bank and IMF have always been an American and a European, respectively, something which riles their non-Western constituencies.
The bank will start out with $50 billion of investment capital, a rather paltry sum compared to the amount of money the IMF and the World Bank can throw around, but could grow if national rivalries are held in check. Second on the list of concerns of the Indian contingent—after equal voting rights for all members—was giving the new financial institution an inclusive name that would allow other countries to join in the future. Indian Prime Minister Narendra Modi reportedly prefers the rather bland “New Development Bank” as the moniker for the fund.
The BRICS bank will help to fund infrastructure projects in the developing world, and score some PR points along the way); however, it’s not an entirely altruistic endeavor. The main purpose of the new bank will be to promote stable currencies among its members and their trading partners through a $100 billion emergency reserve fund, meant to avoid “short-term liquidity pressures” and balance-of-payments crises. BRICS have well-developed internal economies, but they rely on trade for much of their GDP, and instability in the currency markets hurts their bottom line. The first BRIC summit back in 2009 ended with a call for new global reserve currency to replace the dollar, and the BRICS bank could be the first step toward the creation of a BRICS basket currency.
The new fund is also a test of whether BRICS is more than just an acronym and actually represents a unified economic bloc. BRICS account for nearly 20% of global GDP, but apart from a few summits boasting their solidarity, they have yet to pursue a common economic strategy.