The five member BRICS decided to set up the BRICS Bank after thrashing out some of the minor irritants and differences of opinion, into what can be termed as the first vindication of how the paradigm of global economic order is gradually moving away from the West and more towards the East.
Win- Win Proposition- BRICS Bank to headed by India and headquartered in China
The BRICS Bank, it has been decided, would have its headquarters in Shanghai while the president of the proposed bank would be from India for the first six years. The bank would have a capital of $100 billion out of which $50 billion would be contributed by the five founding members, namely Brazil, Russia, India, China and South Africa while the remaining $50 billion would be contributed by the new members who are expected to join in due course of time.
In addition to the $100 billion of start-up capital, the BRICS Bank with the proposed name New Development Bank also have plans to create a contingency reserve of another $100 billion for giving assistance to those countries who face sudden flight of capital out of their financial system. While China would be providing $41 billion of this reserve currency pool, $18 billion each would be provided by Russia, Brazil and India whereas South Africa would be giving the remaining $ 5 billion.
The pace at which the BRICS Bank has been finalized merely after a couple of years after it was mooted and the manner in which some of the teething differences were sorted out this time to give final shape to the BRICS Banks is quite impressive.
Why BRICS Bank?
At the core of this initiative is the quest of the rapidly developing economies like Russia, China, Brazil and India to come out of the stranglehold of the Breton Woods system of monetary management that came into being after the end of the Second World War and which gave shape to the global financial arrangement as well as creation of institutions like International Monetary Fund and World Bank
Many of the rapidly developing economies and especially the BRICS members have often alleged discrimination and the lopsided arrangement in the present architecture of institutions like IMF and World Bank which gives too much of share of votes to the European countries and US.
BRICS Bank headquarters will be in Shanghai
In spite of the global financial crisis of 2008 and the declining credential of both the US currency as well as the terrible condition of both US and European economies vis-à-vis the rising clout of the BRICS economies, the ‘powers that be' continue to be reluctant to give a greater share of both vote and say to the emerging economic powerhouses such as those of BRICS.
The quest of the BRICS economies to have their own development finance bank through the BRICS Bank initiative is the first step towards creating a new financial order which would be out of the clutch and stranglehold of the US and Western Europe. A look at the financials of the BRICS economies give an understanding as to why these emerging economic powerhouses have the confidence to unshackle them from the Europe and US dominated Breton Woods system.
The Emerging Powerhouse that is called BRICS
With a combined nominal GDP of $16 trillion (20% of global GDP) and more than $ 24 trillion (30% of global GDP) in terms of Purchasing Power Parity (PPP), with combined exports more than $ 3 trillion in 2012, with a population which is around 42% of the global population, with a combined military might which is not just formidable but even at par with that of US, with massive regional clout that each of the BRICS member has, today BRICS is a force to reckon with and is perhaps the future.
Reports state that over the next few decades, China, India, Brazil and Russia would be among the top -6 economies of the world, a possibility which cannot be denied by anyone today. The core objective of the BRICS Bank would be development financing for its constituent members.
What next for BRICS?
Membership in the bank is expected to rise phenomenally from Asia, Africa and even Latin American countries since most have reservations and issues with the manner of functioning of IMF and World Bank. However it is unlikely that BRICS Bank would attempt to completely replace or compete with IMF and World Bank head on, at least in the immediate future.
However, BRICS Bank may be just the first step towards creation of a completely new financial architecture where non-OECD countries would have more say. Given the changing dynamics of global economy and the shift in the economic theatre from Europe and US toward Asia, there is a strong possibility of BRICS coming out with their own currency for global trading as a follow up to BRICS Bank in the near future.
There is no doubt there are issues and bones of contention among BRICS members and especially between India and China. But the manner in which both have shown maturity in keeping aside bilateral issues of disagreement and move forward to fructify the dream of BRICS Bank is appreciable. In true sense, the Non Aligned Third World has already arrived and it is going to be the future.