Today, leaders of Brazil, Russia, India, China and South Africa — the world’s largest emerging economies plus South Africa — will meet in Fortaleza, Brazil for the sixth BRICS summit.
With a combined land mass of 25% of the earth’s surface, 40% of the world’s population, and 18% of the global economy, BRICS is becoming an established counterbalance the power of the G7 and “The West” on the global scene. Although the theme of the summit will be “social inclusion”, at the top of the agenda is the creation of two new entities controlled entirely by the five BRICS members. The New Development Bank (NDB) will fund development projects independent of the US-controlled World Bank, and the Contingent Reserve Arrangement (CRA) will provide relief from the austere conditions and requirements of the IMF.
The BRICS Development Bank, which will mirror the World Bank, will have US$ 100 billion in authorized capital to be used for financing infrastructure and sustainable development projects in the BRICS member nations and other developing countries. The BRICS countries will initially underwrite US$ 50 billion in capital to the bank, in equal parts of US$ 10 billion each.
Additional shareholders will be permitted upon approval, but the BRICS nations will maintain a 55% controlling interest in the bank. Officially, the location of the NDB has not been determined, but there are indications that Shanghai will be host.
The CRA will be a defensive mechanism that will protect BRICS nations against external currency shocks and will be able to react quickly to capital outflow by keeping its exchange reserves in gold and convertible currencies. According to the BRICS summit press release,
The Contingent Reserve Arrangement (CRA), which will mirror the IMF, will receive an initial subscribed capital of US$ 100 billion and function as an additional buffer of defense for BRICS countries facing difficulties with their balance of payments. China will contribute US$ 41 billion, Brazil, Russia and India will each contribute US$ 18 billion and South Africa will contribute US$ 5 billion to the initial capital
The CRA will operate similar to a closed credit union and will provide an alternative for nations unwilling or unable to meet the economic or political conditions of the IMF. Let’s see how effective global banking can be if it has a conscience and compassion.
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Photo by Ricardo released under a Creative Commons license.