[Economics] BRICS Bank

Economics

BRICS Bank

Synopsis:

(01) Comparison of BRICS with IMF and World Bank

(02) Money in BRICS Bank

(03) BRICS Contingency Reserve

(04) Why BRICS?

(05) Similar to BRICS

(06) BRICS

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(01) Comparison of BRICS with IMF and World Bank:

Data	IMF	World Bank	BRICS Bank
Summit	Bretton Woods (USA)		6th BRICS Summit at Fortaleza (Brazil)
Year	1944		July 2014 (Operations by 2016)
HQ	Washington		Shanghai (China)
Members	188	188 (IBRD); 172 (IDA)	5
Voting power	Different Voting powers based on quota system	Differs according to the share holding	All have equal voting power
Components	---	IBRD, IDA, IFC and MIGA	----
Purpose	* Loans to solve BoP crisis * Technical assistance in policy making * Surveillance over international economy	* Poverty reduction to 30% by 2030 * Soft loans for development projects * Promoting foreign investment and international trade	* Loans for infrastructure and sustainable development projects * Helping country in BoP crisis
BoP – Balance of Payment IBRD – International Bank for Reconstruction and Development IDA –International Development Agency IFC – International Finance Corporation MIGA – Multilateral Investment Guarantee Agency

(02) Money in BRICS Bank:

Initial subscribed capital	50 billion (each country gave  10 billion)
Initial authorized capital	100 billion
Contingency Reserve Arrangement (CRA)	100 billion

(03) BRICS Contingency reserve:

·        It is meant to help member nations fight against Balance of Payment crisis

Ø     China – 41 billion

Ø     Brazil, India, Russia – 18 billion (each)

Ø     South Africa – 5 billion

(04) Why BRICS?:

·        BRICS nations have become as big economic power- collectively 1/5th of World GDP and 2/5th of world population. They want to solidify and demonstrate their strength with help of this “new development bank”.

·        BRICS nations are disenchanted with Bretton-Woods institutions viz World Bank, IMF, GATT (which later became WTO).

·        Since their inception in 1944, the IMF and World Bank have not reformed their governance structure, to give more voting and voice to emerging economies. Both dominated by USA and developed countries. Both are out of sync with the new dynamics of world economy.

·        Will help defending these five economies from volatility in dollar exchange rate.

·        Will help financing high tech projects, infrastructure and sustainable Development in member nations.

·        Although IMF and World Bank provides loans but with various conditions imposed. BRICS nations want loan but without having to follow such dictates from the developed world.

·        In BRICS bank, the First chairman of the board of governors will be a Russian. First President of the bank will be an Indian.  This is difficult in World Bank and IMF given the lobbying and uneven voting power.

·        In the long run, it’ll make Chinese Yuan as an alternative to US Dollar- for global financial system. Then USA / West imposed ‘sanctions’ against any BRICS will become less effective.

·        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.”

(05) Similar to BRICS:

·        BRICS concept is not anew one; other have done it in the past

1960s – Development Bank of Latin America

2000s – Chiang Mai initiative (10 ASEAN + China + South Korea and Japan); to set up currency swap pacts during Asian currency crisis

2009 – Bank of South (Latin American countries, due to dissatisfaction with US dominated IMF & World Bank)

(06) BRICS:

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