BY Matt Atkins
Tuesday 16 July saw the leaders of the BRICS nations launch a $100bn development bank and currency reserve pool aimed at funding development projects in emerging nations. The move has been heralded as the first concrete step toward reshaping a Western-dominated international financial system, symbolised by the IMF and World Bank.
Based in Shanghai, the bank will be led by India for the first five years, followed by Brazil and then Russia. The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and approximately one-fifth of global economic output.
The bank will begin with a subscribed capital of $50bn divided equally between its five founders (Brazil, Russia, India, China and South Africa), with an initial total of $10bn in cash put in over seven years and $40bn in guarantees. It is scheduled to start lending in 2016 and be open to membership by other countries, but 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. China will contribute the bulk of the contingency currency pool, at $41bn. Brazil, India and Russia will put in $18bn each and South Africa $5bn.
Negotiations to create the bank lasted two years as Brazil and India fought China’s attempts to get a bigger share in the lender than the others.
Negotiations over the headquarters and first presidency lasted until Monday 15 July due to further differences between India and China. These difficulties reflect the issues Brazil, Russia, India, China and South Africa have faced in reconciling their economic and political differences.
While Brazil and India have prevailed in keeping equal equity at the bank’s launch, there are still some fears that China, as the world's second largest economy, could try to assert greater influence over the bank to expand its political influence.