BRICS creates an alternative to The World Bank

Brazil, Russia, India, China and South Africa or together called BRICS have embarked on a huge mission. They are calling it The New Development Bank. It has been widely reported that BRICS nations wanted more say in the global economic matters at the World Bank and the IMF. Failing to address their concerns, BRICS decided to launch their own corpus to restore their waning clout in global affairs.

BRICS, still in its nascent stage - this is their sixth summit - have approved the creation of a $100 billion Development Bank. China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41 billion. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion. Designed to provide an alternative to receiving finance from the World Bank or the IMF, the leaders have agreed to create a $100 billion currency exchange reserve, which can be utilised by them in case of balance of payment crisis.

“The BRICS are gaining political weight and demonstrating their role in the international arena,” Brazilian President Dilma Rousseff said after a signing ceremony.

Together BRICS have granted each member country a role in their new endeavour. China has been granted the bank’s headquarters and India has been allotted the first presidency which will keep rotating. The first chairperson of the Board of Governors will be from Russia, while the first chairperson of the Board of Directors will be Brazilian. South Africa will establish an African regional centre for the bank. The leaders insist that this has been decided ‘democratically’ but several reports suggest that China ‘insisted’ on hosting the bank’s headquarters. The leaders finally relented and now term Shanghai as the bank’s most appropriate headquarters as it attracts substantial private funding.

So why BRICS are so keen to develop an entirely new bank when The World Bank and the IMF already exist? They are terming this new bank as an organisation that plans to challenge the World Bank and the International Monetary Fund (IMF), essentially governed by the Americans and the Europeans. 

The emergence of this bank can be mainly attributed to this underlying but prominent and common feeling among BRICS to rise up to the US and Europe who continue to dominate the global economic situation. Unhappy at being sidelined in the decision making process at The World Bank and the IMF, BRICS – through this bank – aims to fall back upon their ‘own’ bank for their ‘needs’ without having to toe the line suggested by these existing organisations controlled by the Americans and the Europeans.  

The New Development Bank is their first concrete step towards reshaping the Western-dominated international financial system. Speaking about the bank, Russian President Vladimir Putin, in his interview to Russia Today said that it sought to decouple dependency on the U.S. dollar and strengthen the rule of international law:

“First of all, this is the common intention to reform the international monetary and financial system. In the present form it is unjust to the BRICS countries and to new economies in general. We should take a more active part in the IMF and the World Bank's decision-making system. The international monetary system itself depends a lot on the US dollar, or, to be precise, on the monetary and financial policy of the US authorities. The BRICS countries want to change this.”

At this moment, what BRICS have set out to achieve seems more like an attempt to pacify their ego than anything else. To begin with, the member countries are poles apart – politically, economically and futuristically speaking - from each other. While India and Brazil boast of a thriving democracy, one cannot say the same about Russia or China. The group has China and South Africa at completely opposite ends of the economic spectrum. Their differences are wide and stark are reflected by the fact that they took over two years to negotiate the formation of this bank. Brazil and India fought China's attempts to get a bigger share in the lender than the others. In the end, China’s might prevailed as the bank’s headquarters will be in Shanghai, but fears remain that China would continue to act like a big brother and ‘use’ this bank to increase its clout against United States. The only respite at the moment for the remaining members is that China will not preside over the bank for atleast two decades.

The future of this new venture hangs in balance as besides working out the modalities of the formation of this bank, little has been thought about the vision or future endeavours. The biggest challenge for BRICS will be to rise above its ‘personal’ agenda and stay together to counter the monopoly of the Americans and the Europeans. Cause whatever the challenges might be, as Nobel Prize Winner Joseph Stiglitz puts it, BRICS bank is “an idea whose time has come.”