Competition for the World Bank, BRICS discuss common development bank

Brics to discuss common development bank
The Brics group of fast-growing nations is expected to discuss the creation of a common development bank for the grouping at a meeting in New Delhi next week.
Finance ministers from the Brics, which include Brazil, Russia, India, China and South Africa, raised the idea at a Group of 20 meeting in Mexico in late February, said a government official in Brazil. “It is still very much at the early stages of discussion,” he added.
The idea comes as the Brics nations are looking potentially to formalise their grouping by building common institutions and exploring opportunities for lending.
A disparate group of countries with sharply varying political systems and located at different corners of the globe, the Brics nonetheless share some common geopolitical, economic and trading interests. They are among the world’s largest economies and hold a large part of its foreign exchange reserves.Among the other initiatives expected to be unveiled at the Brics meeting on March 28-29 is a plan by China to extend renminbi loans to other members of the grouping.
Its development bank is expected to sign a memorandum of understanding with its counterparts under which it will make renminbi loans available, while the other Brics nations’ development banks will also extend loans denominated in their respective currencies.
While the idea of a common development bank is still at the initial stages of discussion, its purpose would be better to mobilise savings between the countries.
However, China would probably be unwilling to support the idea unless it had control of the bank, Indian officials said. This would not rule out the proposal but would mean that Russia, Brazil and India would have to go it alone.
A common development bank could be an important tool for China, however, in its quest to promote the renminbi, which it is trying to build into an international currency that could one day rival the dollar or euro.
The plan to lend in renminbi is expected to increase trade between the five nations. Only 13 per cent of China’s trade in Asia is presently conducted in renminbi but this could rise to half by 2015, according to HSBC.
For Brics members such as Brazil, whose development bank has a balance sheet four times the size of the World Bank, a common institution for the grouping could provide a way of opening further trade links, particularly with Russia and China.
These are already big customers of Brazilian commodities but the Latin American economy is keen to persuade them to buy more manufactured products.

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BRICS emerging nations are close to reaching a deal that would create a joint development bank, the South African diplomat charged with managing an upcoming summit of the five countries said on Tuesday.

"There is a lot of convergence on key issues," said Anil Sooklal, the deputy director general at the Department for International Relations.

While details have yet to be finalised, Brazil, Russia, Indian, China and South Africa appear to be in near agreement on the toughest issue concerning the bank: how much cash they will each put in.

"The amount of $50 billion each is something we have all found comfort with, but it remains a work in progress."

The establishment of a bank is one of South Africa's priorities for a BRICS summit it will host in Durban in March.

Ahead of the meeting, finance ministers of the group have been charged with examining the feasibility of establishing a bank.

"They have a number of meetings and will report to the BRICS leaders on the fringes of the G20 summit in Moscow next month," Sooklal said.
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The leaders of the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- are set to approve the establishment of a new development bank during an annual summit that starts today in the eastern South African city of Durban, officials from all five nations say. They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises.
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The BRICS nations, which have combined foreign-currency reserves of $4.4 trillion and account for 43 percent of the world’s population, are seeking greater sway in global finance to match their rising economic power. They have called for an overhaul of management of the World Bank and IMF, which were created in Bretton Woods, New Hampshire, in 1944, and oppose the practice of their respective presidents being drawn from the U.S. and Europe.
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While BRICS leaders may approve the creation of a development bank in principle at the summit, there’s still disagreement on how it should be funded and operated.
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BRICS members China and Brazil agreed on Tuesday to trade in their own currencies the equivalent of up to $30 billion per year, moving to take almost half of their trade exchanges out of the U.S. dollar zone.

The agreement, due to last three years and signed hours before the start of a BRICS summit in Durban, South Africa, marked a step by the two largest economies of the emerging powers group to make real changes to global trade flows long dominated by the United States and Europe.
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The Russian Government signed a draft agreement on the creation of a $100 billion pool of currency reserves that the BRICS countries are forming to guard against financial shocks. According to the document, the countries’ dollar reserves will remain on the balance sheets of their central banks. However, these reserves can be made available at the request of one of the parties.

Vasily Yakimkin, a senior lecturer at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), says two substructures are being created under the project. The stabilisation fund with capital of $100 billion would be a direct competitor with the IMF. China would contribute $41 billion, Brazil, Russia and India, $18 billion each and South Africa $5 billion. The second substructure would be a new development bank will come into being with a start-up capital of $50 billion, with each country contributing $10 billion. “As expected, the agreements on the creation of these structures will soon be signed at the summit of the heads of the BRICS countries in Brazil on July 15,” Yamikin says. “The structures will start functioning starting in 2015.” ...

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As Putin explains, this is part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." Initial capital for the BRICS Bank will be $50 Billion - paid in equal share among the 5 members (with a contingent reserve up to $100 Billion) and will see India as the first President. The BRICS Bank will be based in Shanghai and chaired by Russia. Simply put, as Sovereign Man's Simon Black warns, "when you see this happen, you’ll know it’s game over for the dollar.... I give it 2-3 years."
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... The new BRICs Development Bank, modelled on the IMF, will have a $100bn currency reserve available to lend around the world, giving distressed debtor nations an alternative to the “Washington consensus”.

For a long time, the BRICs have been paying in to the IMF, yet been denied additional influence over what happens to the money. Belgium has more votes than Brazil, Canada more than China.

The institutions governing the global economy have failed to keep pace with reality. Modest reforms giving the large emerging markets more power, agreed with much fanfare in 2007 and again in 2010, have been stalled by Washington lawmakers. The BRICs have now called time, setting up their own, rival institution based in Shanghai.
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WSJ said:

A development bank China launched with its fellow Brics countries was supposed to reshape international finance. Russia's invasion of Ukraine now risks turning it into a zombie bank.

Eight years after Chinese leader Xi Jinping and his counterparts from Brazil, Russia, India and South Africa established the New Development Bank, with headquarters in a swanky Shanghai skyscraper, it has all but stopped making new loans and is having trouble raising dollar funds to repay its debts, according to an examination of its finances and interviews with bankers and others familiar with the matter.

The New Development Bank is the lesser-known of two China-based multilateral lenders. Its larger cousin, the Asian Infrastructure Investment Bank, this week landed in the middle of a public-relations crisis after a disgruntled executive accused it of being controlled by members of China's Communist Party.

Trouble at both banks, as well as at China's giant Belt and Road infrastructure push, which has seen China spend $1 trillion to expand its influence across Asia, Africa, and Latin America, spotlights growing difficulties for Beijing's strategy to rearrange an international order it considers biased in favor of the West.

Both the AIIB and the New Development Bank were set up in large part to reduce developing countries' dependence on dollar-based funding—alternatives to the International Monetary Fund that would help finance development in some of the world's fastest-growing economies. ...

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The Saudi Minister of Foreign Affairs, Prince Faisal bin Farhan bin Abdullah, met in Paris with the President of BRICS New Development Bank (NDB), Dilma Rousseff, in the presence of the Minister of Finance Mohammed bin Abdullah Al-Jadaan.

During the meeting, they reviewed relations between the Kingdom and the BRICS group and discussed ways to strengthen and develop them.

In addition, the meeting addressed aspects of economic and developmental cooperation in light of Saudi Vision 2030, aimed at achieving global sustainable development goals.

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