The New Development Bank (NDB),
formerly referred to as the BRICS Development Bank, which came into existence in the 6th BRICS meet in Brazil, is multilateral development
bank operated by the BRICS states (Brazil, Russia, India, China and South
Africa) as an alternative to the existing World Bank and International Monetary
Fund. The Bank is setup to foster greater financial and development cooperation
among the five emerging markets. It would be headquartered in Shanghai, China
and the first chief executive will come from India.
Purpose: The NDB has been given $50 billion in initial capital. As
with similar initiatives in other regions the BRICS bank appears to work on an
equal-share voting basis, with each of the five signatories contributing $10
billion. The capital base is to be used to finance infrastructure and
“sustainable development” projects in the BRICS countries initially, but other
low- and middle-income countries will be able buy in and apply for funding.
BRICS countries have also created a $100 billion Contingency Reserve Arrangement
(CRA), meant to provide additional liquidity protection to member countries
during balance of payments problems. The CRA—unlike the pool of contributed
capital to the BRICS bank, which is equally shared—is being funded 41 percent
by China, 18 percent from Brazil, India, and Russia, and 5 percent from South
Africa.
Reason for establishing NDB?
The BRICS (Brazil, Russia, India,
China and South Africa) are gaining in economic power and crave the political
clout to match, but standing in the way is a global financial system organized
by the West and dominated by the U.S. They’re forced to conduct their
international business in the unstable U.S. dollar, making their economies
swing back and forth with the winds of policy crafted in Washington, D.C., and
New York City.
As of 2010, despite having the
world’s second-largest economy, China is still locked out of the IMF’s top five
shareholders, with only 3.81 percent of total voting power, while Brazil, with
an economy comparable to France and the UK, is only permitted to wield 1.72
percent of votes at the institution. Although the BRICS comprise over one-fifth
of the global economy, together they wield about 11 percent of the votes at the
IMF. The top five IMF shareholding nations have literally refused to make room
at the table for these other powerful states, which could, with a little
compromise, quite easily have become their natural allies. For
a very long time, the US and other Western States, which together control most
aspects of IMF and World Bank lending, abused their position at those
institutions in the service of their own national interests.
Reasons why this bank matters?
- First, it demonstrates the viability and dynamics of the BRICS despite all the skepticism and criticism in recent years
- Second, the BRICS bank demonstrates China’s global leadership.
- Third, the BRICS bank is significant because it is a direct challenge to the global order led by the West.
The new BRICS development bank is unlikely to replace the
IMF and World Bank in the near future as the latter will still remain powerful
players in the global economic order. The most likely relationship between the
two is a complementary relationship rather than a conflicting one. That said,
in the long run the competition between the two will intensify and the final
outcome will depend on the balance of power between the two blocs: the
developing world and the developed world. What is for sure is that we are in
for some interesting times!!
