The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.
Brazil has already drafted a charter for the BRICS
Development Bank, while Russia is drawing up intergovernmental
agreements on setting the bank up, he added.
In addition, the BRICS countries have already
agreed on the amount of authorized capital for the new institutions:
$100 billion each.
“Talks are under way on the distribution of the
initial capital of $50 billion between the partners and on the location
for the headquarters of the bank. Each of the BRICS countries has
expressed a considerable interest in having the headquarters on its
territory,” Lukov said.
It is expected that contributions to the currency
reserve pool will be as follows: China, $41 billion; Brazil, India, and
Russia, $18 billion each; and South Africa, $5 billion. The amount of
the contributions reflects the size of the countries’ economies.
By way of comparison, the IMF reserves, which are
set by the Special Drawing Rights (SDR), currently stand at 238.4
billion euros, or $369.52 billion dollars. In terms of amounts, the
BRICS currency reserve pool is, of course, inferior to the IMF. However,
$100 billion should be quite sufficient for five countries, whereas the
IMF comprises 188 countries – which may require financial assistance at
BRICS Development Bank
The BRICS countries are setting up a Development
Bank as an alternative to the World Bank in order to grant loans for
projects that are beneficial not for the U.S. or the EU, but for
The purpose of the bank is to primarily finance
external rather than internal projects. The founding countries believe
that they are quite capable of developing their own projects themselves.
For instance, Russia has a National Wealth Fund for this purpose.
“Loans from the Development Bank will be aimed not
so much at the BRICS countries as for investment in infrastructure
projects in other countries, say, in Africa,” says Ilya Prilepsky, a
member of the Economic Expert Group. “For example, it would be in BRICS’
interest to give a loan to an African country for a hydropower
development program, where BRICS countries could supply their equipment
or act as the main contractor.”
If the loan is provided by the IMF, the equipment will be supplied by western countries that control its operations.
The creation of the BRICS Development Bank has a
political significance too, since it allows its member states to promote
their interests abroad. “It is a political move that can highlight the
strengthening positions of countries whose opinion is frequently ignored
by their developed American and European colleagues. The stronger this
union and its positions on the world arena are, the easier it will be
for its members to protect their own interests,” points out Natalya
Samoilova, head of research at the investment company Golden
Having said that, the creation of alternative
associations by no means indicates that the BRICS countries will
necessarily quit the World Bank or the IMF, at least not initially, says
Currency reserve pool
In addition, the BRICS currency reserve pool is a
form of insurance, a cushion of sorts, in the event a BRICS country
faces financial problems or a budget deficit. In Soviet times it would
have been called “a mutual benefit society”, says Nikita Kulikov, deputy
director of the consulting company HEADS. Some countries in the pool
will act as a safety net for the other countries in the pool.
The need for such protection has become evident
this year, when developing countries’ currencies, including the Russian
ruble, have been falling.
The currency reserve pool will assist a member
country with resolving problems with its balance of payments by making
up a shortfall in foreign currency. Assistance can be given when there
is a sharp devaluation of the national currency or massive capital
flight due to a softer monetary policy by the U.S. Federal Reserve
System, or when there are internal problems, or a crisis, in the banking
system. If banks have borrowed a lot of foreign currency cash and are
unable to repay the debt, then the currency reserve pool will be able to
honor those external obligations.
This structure should become a worthy alternative
to the IMF, which has traditionally provided support to economies that
find themselves in a budgetary emergency.
“A large part of the fund goes toward saving the
euro and the national currencies of developed countries. Given that
governance of the IMF is in the hands of western powers, there is little
hope for assistance from the IMF in case of an emergency. That is why
the currency reserve pool would come in very handy,” says ambassador
The currency reserve pool will also help the BRICS
countries to gradually establish cooperation without the use of the
dollar, points out Natalya Samoilova. This, however, will take time. For
the time being, it has been decided to replenish the authorized capital
of the Development Bank and the Currency Reserve Pool with U.S.
dollars. Thus the U.S. currency system is getting an additional boost.
However, it cannot be ruled out that very soon (given the threat of U.S.
and EU economic sanctions against Russia) the dollar may be replaced by
the ruble and other national currencies of the BRICS counties. Apr 14, 2014 Source: Russia Beyond the Headlines –
[sidebar: The long Bully/ies of earth, Rothschilds, Rockefellers, Et Al. are in the battle with the Easterner long world earth Bully/ies.
"Agent/s" for the Western European 'People' and of course then, the Western 'People', "United States of America" ([USA], well the IDEA was an important thought), and all the ilk associated with the ideologies "banking", "money", are criminally insane. There isn't any so called government in the 21 Century not involved in making the species Homo Sapiens' into subterranean.]