The CRA, along with the
The birth of the new development bank is a reflection of the growing frustration among developing nations on the dollar denominated global financial system where the multilateral agencies are controlled by the rich nations.
Recent efforts to reform the 70-year-old institutions appear to have stalled. "Though IMF exists to provide short-term balance of payments financing, such funding is often insufficient, and is often tied to inappropriate conditionality. There is, therefore, a clear gap for a broad-based Southern-led monetary fund, that can be led by the BRICS, and that builds on the experience of, and complements existing regional institutions," wrote
Examples of the existing institutions include the original Chiang Mai Initiative — which has evolved into the 10+3 foreign-exchange reserves pool established by the
The CRA — a stabilisation fund is a coordinated central bank fund which is set up to provide mutual liquidity in the event of a crisis, probably without the involvement of the IMF.
But recent history of fund outflows from emerging markets show CRA has an important role to play. Many of the Brics countries were hit by a wave of instability following the US Federal Reserve's announcement of tapering of monetary stimulus.
"The CRA is an easy win for a group that is increasingly accused of being a talk show. It provides a concrete course of action that the group can take without much difficulty," said
The rationale for the BRICS development bank has been built focusing on the major needs in infrastructure and more sustainable development. Current annual spending on infrastructure in Brics is estimated to reach around
"The main, though not the only, reason for creating a Brics development bank is that it can contribute to bridge that crucial gap. The fact that the estimated financing gap is so large is an important reason for providing the Brics bank with a large capital endowment, said Griffith-Jones.
Another reason to create a Brics bank is to give emerging and developing countries greater voice in the development finance architecture, at a time when they clearly have the financial resources to do so.
From the perspective of the Brics themselves, as well as other potential contributors of capital to the new bank, there are clear advantages in putting a small part of their existing reserves into long-term investment in developing countries, as this offers them clear benefits of diversification, as well as improving facilities for infrastructure in countries with which they increasingly trade and invest in.
At first, the bank will start off with
Politically, economically and geographically, the countries have little in common. The creation of the Brics bank will almost surely create competition for both the
Brics on Tuesday signed the long-anticipated document to create the
Each Brics member is expected to put an equal share into establishing the start-up capital of
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