Abstract

BRICS is the acronym for the powerful group of leading emerging economies, namely Brazil, Russia, India, People’s Republic of China and South Africa. Since 2009, the BRICS meet regularly in one of the member countries to discuss various issues concerning the coordination of economic and foreign policies. On March 2013 in Durban South Africa, took place the fifth conference of the BRICS leaders of the five BRICS nations plan to create a development Bank in a direct challenge to the World Bank and International Monetary Fund (IMF) that they accuse of Western bias, against Bretton Woods institutions. The Bank would use $50 billion of seed capital shared equally between Brazil, Russia, India, China and South Africa. The Bank would support financing needs in emerging and developing nations. It will be active in 2015 with headquarters in South Africa. The new development Bank will operate with the national currencies used for bilateral and multilateral BRICS trade (see Swap Agreements) and it could further marginalize the increasingly unstable U.S. dollar, helping to eventually dethrone it as the global reserve currency.

Durban Agreements vs. Bretton Woods Agreements

“BRICS and Africa - partnerships for integration and industrialisation”, this is the topic of the fifth BRICS summit in Durban, South Africa, where they discussed four main objectives: activation of multilateral cooperation agreements, strategic partnerships, agreements on the use of foreign exchange reserves, and especially for the establishment of a development Bank.

Once the Western and the U.S. were the only economic pole in the world able to establish conditions. At the end of the eighties, the consensus and the ability to conviction of the American superpower was at its highest, thanks to defeat of socialism in the Soviet Union and the continuous economic growth (see Washington Consensus). In recent years, due to the succession of economic and financial crises, the rules from the Western economic institutions born at Bretton Woods have gradually lost influence on developing countries policies (see Beijing Consensus).The prevailing global governance architecture is regulated by institutions which were conceived in circumstances when the international landscape in all its aspects was characterized by very different challenges and opportunities. In these same years, the financing capacity of the IMF and the World Bank's regulatory authority decrease, while other economies and especially the emerging BRICS, accumulate billions of dollars in foreign exchange reserves. By creating a new development Bank Brazil, Russia, India, China and South Africa are seeking to extend their global economic and political influence and further shift the global balance of power in their favour.

Meeting on the sidelines of the G-20 summit in Los Cabos (Mexico), the BRICS leaders asked their Finance Ministers and Central Bank Governors to explore the construction of a financial safety net and the creation of a Contingent Reserve Arrangement (CRA) amongst BRICS countries. In Durban, the five countries announced the goal to adapt with the international financial institutions and in particular to replace IMF and the World Bank for the financial assistance to the members states.This is confirmed by the summit reports where institutions like the World Bank, the IMF and even the Security Council of United Nations are considered economic and political instruments incapable to solving the issues of the global economy.

The BRICS development Bank is established to fund development projects in BRICS countries and to fend off any future financial crisis thanks to a reserve of foreign currencies.At the Durban summit, in fact, the group's fifth since 2009, the BRICS leaders were also expected to endorse plans to create a joint foreign exchange reserves pool. In addition, the Bank will use the national currencies and not U.S. dollar, as for bilateral trade and multilateral intra-BRICS (see Brazil and China). In fact, China and Brazil have agreed to establish a currency swap line worth around 30 billion dollar in their respective currencies, which they say is designed to protect against future global financial crises.

In addition, the Bank funding will be extended to external BRICS States with which they have commercial or political relationships, in order to increase the influence of this institution. Russia is part of the Eurasian Union, South Africa is part of Southern African Development Community (SADC) and African Development Bank (AFDB), China has strong connections with Asian nations (Asian Development Bank-ADB , Asia Pacific Economic Cooperation - APEC, the Association of Southeast Asian Nations - ASEAN, the Shanghai Cooperation Organization - SCO) and with Iran. The first measures of the new BRICS development Bank will be directed to finance infrastructures in Africa, a strategic continent from economic and geopolitical point of view.

New international financial system and future prospects

The BRICS announced that their establishment of a multilateral development Bank will contribute to a more world order. In a world economy currently suffering, the need for assistance in developing countries and the need to ensure financial stability is growing. Today, financial institutions with this task cannot satisfy these needs. For this reason, a new development Bank and a financial safety net BRICS can help to reduce this deficit. The decision is an additional step towards the decline of the Bretton Woods institutions, which have been riddled by corruption scandals and which are becoming increasingly discredited for debt enslavement rather than the development of developing nations. The BRICS Bank could become promoters of reversal in emerging markets. China, Russia, Brazil, India and South Africa, have the opportunity to respond to the needs of the global economy, due to the large quantity of available reserves. For these reasons, the Bank BRICS could be a potential competitor of the Western financial system.

The BRICS countries reiterate that the world economic order is changing and that the process of developing economic policy agenda at the global level should reflect this. While there is a realization even amongst the developed countries about the increasing economic weight of emerging economies, this is not fully reflected in the governance of global institutions, such as the IMF and World Bank. The main institutions are, in fact, still blocked by the political logic of the end of World War II, while on the contrary, the governance structure of the new BRICS Bank could easily assimilate the contemporary best practices in sustainable finance, sustainable development and climate change. In this way, the Bank could play a key role for developing countries needs, or it could promote a reform process of the current economic and financial institutions. The establishment of the Bank and the reserve pools may also help their drive towards reform votes and quotas in the IMF. Currently, the USA leads the IMF, having the highest quota equal to 17.08%, which allows them to veto any decision (all decisions require 85% of votes to be adopted).

References

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COLEMAN I. (2013) “Ten questions for the New BRICS Bank”, Foreign Policy, Aprile (http://www.foreignpolicy.com/articles/2013/04/09/ten_questions_for_the_new_brics_bank#sthash.zlRN2YJ5.dpbs)

LOCATELLI N. (2013) “C’erano una volta I BRICS”, Limes, Marzo (http://temi.repubblica.it/limes/cerano-una-volta-i-brics/44190)

MAGRI P. … QUERCIA P. (2011) “I BRICS e noi. L’ascesa di Brasile, Russia, India e Cina e le conseguenze per l’Occidente”, Istituto per gli Studi di Politica Internazionale, ISPI, Roma (http://tinyurl.com/q4yk5tv)

POLGREEN L. (2013) “Group of Emerging Nations Plans to Form Development Bank”, The New York Times, Marzo (http://www.nytimes.com/2013/03/27/world/africa/brics-to-form-development-bank.html?_r=0)

SMITH D. (2013) "Brics eye infrastructure funding through new development bank", The Guardian, Aprile (http://www.theguardian.com/global-development/2013/mar/28/brics-countries-infrastructure-spending-development-bank)

Editor: Giovanni AVERSA