BRICS: All you need to know!

What, Where, When ?

What, Where, When ?

Formation of BRICS

BRIC – the acronym was first coined by Jim O’ Niell, the chairman of Goldman Sachs Asset Management, in 2001 in his paper ‘Building Better Global Economic BRICS’. He mentioned how India and China had the potential to become the maestros in manufacturing of goods and services. He stated that Brazil and Russia had the potential to become global supplying giants of raw materials. Hence, originally it was called the BRIC with Brazil, Russia, India and China as its member countries. Eventually the 4 nations commenced talks in September 2006 and held its first summit in June 2009. It was only on December 24th, 2010 that South Africa formally joined the group. The BRIC (BRICS from 2010 onwards) was established as an economic bloc of developing countries that would dominate the world economy by 2050.

The Need for BRICS’ New Development Bank (NDB)

The BRICS nations have previously reprimanded World Bank and IMF for not giving adequate voting rights to developing countries. They have also openly criticised the domination of US dollar as a standard reserve currency, expressing their demand for a more stable and predictable currency. It suggested IMF to include Russian Ruble and Chinese Yuan while assigning values to financial products. They had openly called for a reform of the international monetary system. Bang-on comes the response- The New Development Bank- run by the BRICS economies.

Impact of NDB on IMF and World Bank

There are 2 possible consequences of this joint effort to have an equivalent of the World Bank and IMF.

On one hand, NDB is expected to threaten its western counterparts in the Bretton Woods system. This is because of the equal voting rights allotted to each of the 5 nations which is justified through their equal share in starting capital ($50bn= $10bn from each founding member) accumulated for the bank’s lending capacity. There is no veto power concept being used by NDB unlike the World Bank. Another differentiating feature of NDB in contrast to WB and IMF is, their focus on lending to developing nations for infrastructural projects.  Tough competition from NDB is expected to make World Bank and IMF more transparent and democratic in their functioning.

On the other hand, there are signs of bitter relations within the bloc. China has shown signs of reluctance in cooperating with its fellow members by demanding more capital share in lending. Its main aim- the unspoken but obvious fact- was to strengthen its political clout. But India and Brazil succeeded in convincing China that all founding members have equal stake in lending so that they can retain their USP- equal voting rights! China’s contribution to Contingent Reserve Arrangement (CRA) is $41bn which is the highest among the 5 members. This again raises scepticism about China’s intentions. Critics of NDB continue to advocate that Indo- China disputes might augment tensions within the BRICS. It is important for China to realise that BRICS’ adversaries will try their best to convince the world of enmity within the bloc. So China needs to take relevant precautions to ensure that prophesies do not materialise into reality.

But so far, so good! The bloc has managed to ensure equal participation of all 5 countries which is reflected in the fact that the Headquarters of NDB is in Shanghai (China), the regional centre will be in South Africa, the President of the bank is Mr. K.V. Kamath (an Indian), the chairman of Board of Governors will be Russian and, the chairman of Board of Directors will be from Brazil.

Another interesting twist is the formation of Asian Infrastructure Investment Bank (AIIB) announced by China in October 2014, to be headquartered in Beijing. It is expected to extend credit to countries in the Asia – Pacific region. This bank is supposedly meant to complement the work of NDB, even though it is an entirely separate initiative of China and 56 other Prospective Founding members.

With a significant number of theories churning the rumour mill, the international politics might take an adventurous turn. An eventful journey lies ahead of the developing and the developed world while both try to establish (or re-establish) themselves!

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5 thoughts on “BRICS: All you need to know!

  1. Quite informative and gives one an insight on the BRICS formation and trends on its functioning and impact on world economy .

    Like

  2. The formation of bank has made it more relevant , otherwise it would just hv been a possible holiday destination for leaders.

    Like

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