New Development Bank (BRICS Bank)

New Development Bank (BRICS Bank)

• Agreed in 5th BRICS summit held in Durban, South Africa in 2013
• 6th BRICS summit held in Fortaleza, Brazil, 2014, signed the document for $100 billion BRICS Development Bank and a reserve currency pool worth over another $100 billion
• Headquartered at Shanghai with African Regional Centre at Johannesburg
• 1^st President – India, Chairman of the Board of directors – Brazil, Chairman of Board of governors – Russians

Terms & Objectives

• Primary focus of lending will be infrastructure projectswith authorized lending of up to $34 billion annually
• Will have starting capital of $50 billion, with capital increased to $100 billion over time
• Brazil, Russia, India, China & South Africa will initially contribute $10 billion each to bring the total to $50 billion
• No member can increase its share of capital without other 4 members agreeing – a primary requirement of India
• The bank will allow new members to join but the BRICS capital share cannot fall below 55%
• Official Languages – Chinese, English, Russian, Portuguese, 22 official languages of India

Contingent Reserve Arrangement (CRA)

• Provision of support through liquidity & precautionary instruments in response to potential short-term balance of payments pressures
• To provide protection against global liquidity pressures including currency issues where members’ national currencies are being adversely affected by global financial pressures.
• Total $100 Billion – China will contribute $41 billion, Brazil, Russia and India would give $18 billion each, and South Africa would contribute $5 billion

Why BRICS Bank Born

• BRICS – Collectively 1/5^thof World GDP and 2/5^th of world population
• No reforms in IMF or Word Bank → Highly dominated by USA & G7
• To defend BRICS economy from volatility in dollar exchange rate
• In the long run, it’ll make Chinese Yuan as an alternative to US Dollar, for global financial system

RBI Governor Rajan- “we did not setup BRICS bank to challenge World bank and IMF. This bank is setup only to provide “patient money” to BRICS nations, because World Bank and IMF are taking too much time to reform themselves.”