RETAIL BANKING | Staff Reporter, India

BRICS to establish own bank

Brazil, Russia, India, China and South Africa are ready to establish a development bank for investment risk-sharing.

The organization of this bank is expected to be among the leading topics at the BRICS summit on March 28 in New Delhi. It will be the fourth BRICS summit since 2009.

Proposed by India, the bank will also serve as an instrument for increasing the influence of BRICS in the International Monetary Fund and other multilateral institutions to match BRICS’ growing economic power.

BRICS is an international political organisation of leading emerging economies. As of early this year, the five BRICS countries constitute almost half of the world's population. Collectively, BRICS has nominal GDP of US$14 trillion and some US$4 trillion in combined foreign reserves.

Prof. Adams Bodomo of the School of Humanities at the University of Hong Kong who has made extensive studies on BRICS, said Brazil has proposed that developing countries would be willing to contribute money to solve the Eurozone problems in return for more power in the IMF.

Bodomo, however, said IMF isn’t really for developing countries and labeled the Washington-based institution the “Western Monetary Fund.”

The BRICS development bank presents a unique opportunity for indirect investment of central bank foreign reserves inside the group. A BRICS bank could also issue convertible debt, which could be top-rated and bought by central banks of the BRICS countries. It would give BRICS a vessel for investment risk-sharing.

China will be the biggest beneficiary of the BRICS bank, believes Alexander Appokin, senior expert at the Center for Macroeconomic Analysis and Forecasting in Moscow.

"Moreover, infrastructure investment mostly needs not just long-term financing but external monitoring for more transparency and efficiency increases. Here, a BRICS development bank could offer some advice for successful implementation of regional projects."

He cautioned, however, that development structures like a BRICS bank are effective only in case they are given independence in project financing decisions from the governments, or are allowed room to operate in long- term development framework.

Among the thornier issues BRICS has to resolve is China’s demand for permanent presidency of the bank. Russia and India, however, are said to be demanding the same right.

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