Brics Nations To Explore Possibility Of A Common Development Bank

March 29, 2012Emerging Marketsby EW News Desk Team

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Finance ministers from the BRICS bloc have raised the idea of setting up a common development bank. This comes at the time when many questions have been raised over the group’s ability to function as a cohesive policy bloc.

Leaders from the five-nation bloc arrived in New Delhi yesterday for their annual summit. On the agenda, the emerging nations are expected to unveil closer trade and investment initiatives.

The BRICS acronym was coined by Goldman Sachs economist Jim O’Neill in 2001, as a way of grouping and characterising the emerging markets’ leadership and importance in global economic growth.

Today, the BRICS, or Brazil, Russia, India, China and South Africa, represent almost 28 percent of the global economy, hold a large portion of global foreign exchange reserves, and make up nearly half of the world’s population.
 

On top of the summit’s agenda, the five countries are looking to establish a joint development bank, similar to the World Bank, International Monetary Fund, or the regional Asian Development Bank.

The development bank would allow countries access to funding outside of the global financial system, as well as reduce financial dependency on Europe and the United States.

The Financial Times believes a “common bank could assist Beijing to build up its currency and compete globally in future with the dollar and euro, and aid cash-strapped economies such as India secure more capital.”

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The China Development Bank and its BRIC’s counterparts will also sign agreements on Thursday to formalise cooperation in local currency lending.

Chen Yuan, chairman of the CDB, said:

Using our own currencies to issue loans and settle payments can minimize exposure to exchange rate fluctuations, reduce our reliance on third-party currencies, and facilitate trade and investment.

However, many questions have been raised over the success and influence of the BRICS. While their individual economies have grown remarkably, they have struggled to find the common ground necessary to act as a unified geopolitical alliance.

Huang Yasheng, professor of global economics and management at the Massachusetts Institute of Technology told the New York Times:

It is not a policy bloc at all. It is really a photo op. It is really this idea that the West is no longer or should no longer be view as the only centre of gravity.

O’Neill, also, points out that the respective countries have different political systems, and very different economic policies to pursue to maintain their growth levels.

Still, he predicts that the bloc’s growth outlook is much better than most of the developed world – a glimmer of hope that the bloc’s clout will likely keep growing. 

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