The establishment on this week of the BRICS Development Bank and the contingency reserve arrangement (CRA) help promote a multilateral financial diplomacy advocated by China, writes People’s Daily Online. In recent years, China’s diplomacy has come under a lot of pressure. With the help of the multilateral mechanism and platform, China will have more say in the world.
In response to international financial turmoil, the NDB will use the RMB for trade and investment in BRICS. It will certainly help to promote the internationalization of the RMB.
Leaders of Brazil, Russia, India, China and South Africa inked a deal to launch a development bank with an initial $50 billion capital and a $100 billion monetary
reserve.
According to the accompanying Fortaleza declaration, the bank and the fund aim “to mobilize sources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies”, and are intended to serve as an alternative to the Western-dominated World Bank and International Monetary Fund (IMF).
The five countries decided that the New Development Bank (NDB) would be headquartered in Shanghai and its initial subscribed capital will be equally shared among founding members. The first chair of the Board of Governors will be from Russia, the first chair of the Board of Directors from Brazil, and the first president of the bank from India.
In the long term, the NDB will help to rebuild the international financial order and break the major powers’ monopoly of the international financial system. The mechanism of joint development will be open to more developing economies, and form an emerging force.
In terms of economic function, the NDB will provide long-term development aid to developing countries. The monetary reserve will provide an economic stability fund to help BRICS countries respond to financial emergencies. BRICS Development Bank and the CRA will help emerging nations to borrow cash for building highways, power stations and other major infrastructure projects, and to better cope with the risks created by international capital flows and the impact of financial turmoil.
Since the end of World War II, under the Bretton Woods financial system created by its victors, the World Bank and the International Monetary Fund have had a near monopoly on development and emergency financing. The World Bank provided $60 billion last year. When combined with investment from private sectors, the total added up to around $150 billion, far short of real demand.
“Developing countries have begun to self-organize and set up their own programs inresponse to the current international economic order.” Zhang Haibing, researcher of Shanghai International Study Institute believes
that the NDB is an effective complement to the existing international multilateral development cooperation mechanisms.
Zhang said that its impact on the developing world could be enormous – freeing it from the Western-dominated financial institutions and stimulating accelerated growth in emerging markets.
World Bank President Jim Yong Kim regarded the NDB as a new force for battling poverty and sharing prosperity globally.
“The need for new investment in infrastructure is massive. We think we can work very well in cooperation with the new banks once they become a reality.”