JANUARY 2017

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- Suresh Jaura
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BRICS Bank Established: Beginning of Financially Multi-Polar World

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By Countercurrents

BRICS Development Bank has been established on July 15, 2014 in the now-going BRICS summit in Brazil . It is an epoch-making event for the global south. A financially multi-polar world begins with the establishment of the much-hoped BRICS bank. It is the beginning of the end of US dollar-dominance and the dominance of the Bretton Woods institutions – the World Bank and the International Monetary Fund. Establishment of the bank surpasses all on-going incidents around the world.

The long-awaited bank is the first major achievement of the BRICS countries since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War II.

Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can't remain above international problems, said Brazil 's president Dilma Rousseff.

She cautioned the world not to see BRICS deals as a desire to dominate.

“We want justice and equal rights,” she said.

“The IMF should urgently revise distribution of voting rights to reflect the importance of emerging economies globall y,” Rousseff said.

BRICS, the group of emerging economies, signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar. Brazil , Russia , India , China and South Africa form the BRICS.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

“BRICS Bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said on July 15, 2014 at the 6th BRICS summit in Fortaleza , Brazil .

The launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade as well as dollar-backed institutions such as the IMF and the World Bank, both US-based institutions BRICS countries have little influence within.

“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said.

BRICS account for 11 percent of global capital investment, and trade turnover almost doubled in the last 5 years, the Russian president reminded.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion.

The BRICS bank will be headquartered in Shanghai , India will preside as president the first five years to be followed by Brazil and then Russia , and Russia will be the chairman of the representatives.

Each country will send either their finance minister or Central Bank chair to the bank's representative board.

Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico , Indonesia , or Argentina , once it sorts out its debt burden.

BRICS represents 42 percent of the world's population and roughly 20 percent of the world's economy based on GDP, and 30 percent of the world's GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world's total.

The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion's share, about $41 billion, Russia , Brazil and India will chip in $18 billion, and South Africa , the newest member of the economic bloc, will contribute $5 billion.

The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.

The mechanism creates the foundation for an effective protection of the national economies from a crisis in financial markets.

BRICS has already created the BRICS Stock Alliance, an initiative to cross list derivatives to smooth the path for international investors interested in emerging markets.

Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also signed.

Russia has also proposed the countries come together under an energy alliance that will include a fuel reserve, as well as an institute for energy policy

A Reuters report headlined “BRICS set up bank to counter Western hold on global finances” said:

Leaders of the BRICS launched a development bank and a currency reserve pool in their first concrete step toward reshaping the Western-dominated international financial system.

The bank is aimed at funding infrastructure projects in developing nations.

The Fortaleza , Brazil , July 16, 2014 datelined report said:

The BRICS were prompted to seek coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of US monetary stimulus. The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about one fifth of global economic output. The bank will start with a subscribed capital of $50 billion divided equally between its five founders, with an initial total of $10 billion in cash put in over seven years and $40 billion in guarantees.

The report by Alonso Soto and Anthony Boadle said:

The bank will start lending in 2016. The capital share of the BRICS cannot drop below 55 percent. The contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member to cushion balance of payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fueled a boom in emerging markets for a decade. "It will help contain the volatility faced by diverse economies as a result of the tapering of the United States ' policy of monetary expansion," President Dilma Rousseff said.

If a need arises, China will be eligible to ask for half of its contribution, South Africa for double and the remaining countries the amount they put in.

To be Concluded

 

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