SHANGHAI — Things came down to the wire in Brazil this week—not in the World Cup final but for the details of a development bank to be jointly funded by BRICS (Brazil, Russia, India, China and South Africa). In the end it was confirmed that the bank, aptly named the New Development Bank (NDB), would be headquartered in Shanghai and its initial presidency held by an Indian national. The move is widely expected to bolster Shanghai’s bid to become an international financial center by 2020.
The NDB, designed to finance infrastructure projects in BRICS and other emerging nations, will have an initial subscribed capital of US$50 billion, contributed in equal shares of US$10 billion by its 5 member states. Voting rights will be split between the five founding members and decisions made via a two-thirds majority. Although membership will be open to future additions, it is stipulated that BRICS must retain a controlling stake of at least 55 percent.
The investment bank is accompanied by a secondary financial institution, the Contingent Reserve Arrangement (CRA), which will function as a crisis relief fund. The CRA will eventually hold US$100 billion in funds, contributed in differential amounts by China (US$41 billion), Brazil, India, and Russia (US$18 billion each), and South Africa (US$5 billion).
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Both institutions are expected to act as a counterweight to Western influence via the World Bank and the International Monetary Fund, whose stringent lending practices have long been criticized as insufficient to support demand in emerging nations, estimated as high as US$800 billion. Although details on the composition of NDB/CRA funds have yet to be released, it is likely that China will use the fund to further promote the internationalization of the RMB against that of the U.S. dollar.
BRICS, “the world’s largest emerging markets,” now account for about 20 percent of global GDP and 11 percent of global capital investment. Total trade within the bloc stands at US$6.14 trillion—nearly 17 percent of the world’s total. Russia, apparently eager to close ranks even further, has proposed creating a BRICS energy alliance, including a shared fuel reserve.
The agreement reached during this week’s two-day summit in Fortaleza, Brazil comes after 5 years of negotiations. The bank and emergency fund are now pending legislative approval in each member country, a process which could tack on several years to what in the eyes of national leaders has already been too long overdue.
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