Outgoing President of the World Bank, Robert Zoellick, after just three days ago dismissing the idea of a BRICs created, new global multi lateral bank, has come around and endorsed a BRICs bank in an interview with the FT.
Zoellick had initially said that a BRICs bank and potential rival to the western and U.S. dominated IMF and World Bank, would be difficult to implement given competing BRIC interests.
He acknowledged that a BRICs bank was being created and said that the World Bank supported such a bank. He said that not having Russia and China as part of “the World Bank system” would be a “mistake of historic proportions”.
Leaders of the BRICS nations meeting in India appear to have made much progress in creating a new global bank as the emerging economies seek to convert their growing economic might into collective diplomatic influence.
The five countries now account for nearly 28% of the global economy, a figure that is expected to continue to grow.
On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi.
BRICS leaders, from left, Brazil’s President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma. Photo: AP
Top of the agenda was the creation of the grouping’s first institution, a so-called “BRICS Bank” that would fund development projects and infrastructure in developing nations.
The initiative would allow the countries to pool resources for infrastructure improvements, and could also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe, officials said.
Less noticed and commented upon is the aspirations of the BRIC nations to become less dependent on the global reserve currency, the dollar and to position their own currencies as internationally traded currencies.
The leaders of BRIC nations and other emerging market nations have adopted the idea of conducting trade between the five nations in their own currencies. Two agreements, signed among the development banks of Brazil, Russia, India, China and South Africa, say that local currency loans will be made available for trade between these countries.
The five fast growing nations participating in local currency trade will allow participants to diversify their foreign exchange reserves, hedging against the growing risk of a euro or dollar crisis.
The BRICS want to have easy convertibility of currency to make it easier to use the real, ruble, rupee, renminbi and rand amongst themselves without having to always use the US dollar. Higher intra-Brics trade, conducted in their own currencies would shield their economies from economic dislocations in the west.
In the long run, if global dependence and exposure to the dollar is to be reduced, then the BRICs currencies will have to trade amongst themselves, creating an intra Brics currency market. This could lead to a special reserve BRICs currency that could rival the IMF’s Special Drawing Rights (SDRs) and in time a regional currency could emerge. However, the EU’s experience of a single currency may make this less likely.
Left unsaid so far is the possibility that one of the BRICs or the BRICs in unison might peg the value of their respective currencies to the ultimate store of value and money – gold.
Having a gold standard enforces a form of fiscal self or national control and does not allow any one nation to have an exorbitant privilege in terms of monetary affairs that can be used in order to further selfish national or national corporate or banking interests.