BRICS countries come close to establishing reserve bank

Source: VOA
The BRICS member-countries have come close to establishing a reserve bank which will operate as a stabilization fund, Chinese Finance Minister Chen Zhu Guangyao said. Should such a fund be set up, it will prove helpful in restricting the dollar’s influence on the developing countries’ economies, experts say.

Brazil came up with the initiative to set up a reserve bank in 2012. A relevant agreement was signed in March this year. The joint fund of the BRICS member-states is meant for offering support to the countries united in the BRICS Group in case their economic indices start to deteriorate. Such help would be welcome now more than ever. After the reports of the US Federal Reserve System about a possible reduction of the quantitative easing (QE) programme, the fall of the developing countries’ national currencies started. Since May this year the gold and hard currency reserves of the developing countries have decreased by more than 80 billion dollars. This forced the central banks of the BRICS member-states to work out programmes aimed at saving national currencies. Brazil alone has allocated 60 billion dollars for hard currency interventions in support of its national currency – the real. Uniting their efforts, the BRICS nations will be able to help their national currencies to become less dependent on the dollar, Deputy Director of the “Centre of Development” Institute (the Higher School of Economics)Valery Mironov says:

“The fall of the developing countries’ national currencies, including the BRICS member-states, has become a serious problem for the majority of them. The idea of establishing a reserve fund by the BRICS nations is in harmony with the agreements which were reached this spring. It was exactly at that time that the initiative to create a certain alternative to the World Bank (WB) and to the International Monetary Fund (IMF) was discussed. It is a good idea, taking into account that a new wave of currency instability on the developing countries’ markets is inevitable”.

The BRICS nations have agreed to create a reserve fund worth 100 billion dollars. China will allocate 41 billion dollars, Russia, India and Brazil – 18 billion dollars each, and South Africa – another 5 billion dollars. This money will be used for crediting countries, which need financial help, which, in its turn, will enable them to improve their macroeconomic indices. Another goal here is to carry out the financing of investment, innovative and infrastructure projects. And one more circumstance of importance here : finances will be offered not only to the BRICS member-states but will also be used to offer support to projects in the other developing countries. Now the BRICS Business Council is working out normative documents and relevant mechanisms. Russia’s Finance Ministry believes that the drafting of these documents will require another six months. And the ratification will also take time. The reserve bank will be able to select and to finance its first project only in 2015. Besides, the BRICS countries will have to reach agreement involving decision making and the size of financial help, President of the Association of Russian Banks Garegin Tosunyan says:

“The reserve bank of the BRICS member – countries will operate like similar international agencies. The new bank will be regarded as a response to the position taken by the US Federal Reserve System and the European Central Bank (ECB), which have refused to take on a responsibility for non-residents, which are using both the dollar and the euro”.

In the future the reserve bank will be open to other participants, including new countries and international financial agencies. Very soon the BRICS Group will pass from the current development model based on the inflow of investments to the development model based on the boost of technologies. And the reserve bank is expected to be of help here. Besides, as a result, investors will have more trust in the developing economies, and the influence of the developing countries on world economy will grow.