BRICS okay $100bn bank to rival IMF, World Bank
Leaders of the BRICS emerging market nations launched a $100bn (€74bn) development bank and a currency reserve pool in their first concrete step toward reshaping the Western-dominated international financial system.
The bank aimed at funding infrastructure projects in developing nations will be based in Shanghai, and India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-country group announced at a summit.
They also set up a $100bn currency reserves pool to help countries forestall short-term liquidity pressures. The long-awaited bank will be called the New Development Bank.
It is the first major achievement of the BRICS countries - Brazil, Russia, India, China and South Africa - since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War Two and centred on the International Monetary Fund and the World Bank.
The BRICS were prompted to seek coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of US monetary stimulus.
The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about one-fifth of global economic output.
The bank will begin with a subscribed capital of $50bn divided equally between its five founders, with an initial total of $10bn in cash put in over seven years and $40bn in guarantees. It is scheduled to start lending in 2016 and be open to membership by other countries, but the capital share of the BRICS cannot drop below 55pc.
The contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member to cushion balance-of-payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fuelled a boom in emerging markets for a decade.
"It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," Brazilian President Dilma Rousseff said.
"It is a sign of the times, which demand reform of the IMF," she told reporters at the close of the summit.
China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41bn. Brazil, India and Russia will chip in $18bn each and South Africa $5bn.
If a need arises, China will be eligible to ask for half of its contribution, South Africa for double and the remaining countries for the amount they put in. The Chinese finance ministry, said the new bank would give developing countries a greater say in the international financial order. The new bank "will promote the global system of economic governance to develop in a just and fair direction," said China's official Xinhua news agency.