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  3. BRICS to set up $100 billion development bank

BRICS to set up $100 billion development bank

16 Jul 2014 Evaluate

In a big step toward funding infrastructure projects in major emerging economies and to head off future economic crises, leaders of the BRICS, group of emerging economies - Brazil, Russia, India, China and South Africa, launched a $100 billion development bank, which will be headquartered in Shanghai, China with the presidency initially held by India. BRICS’s leaders also decided to set up $100 billion currency reserves pool to help countries forestall short-term liquidity pressures.

The long-awaited bank is the first major achievement of the BRICS countries since they got together in 2009 to counter western hold on global finances. However, the negotiations to create the bank dragged on for more than two years as Brazil and India fought China's attempts to get a bigger share in the lender than the others. The development bank will have initial capital of $50 billion that could rise to $100 billion, funded equally by each nation.  Further, the bank 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 55 percent.

To cushion balance-of-payments difficulties, the contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member. China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool at $41 billion. On the other hand, Brazil, India and Russia will provide $18 billion each and South Africa $5 billion. The formation of development bank will also help contain the volatility faced by BRICS nations as a result of the tapering of the United States' policy of monetary expansion.

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