For the leaders of the BRICS countries (
The opportunity for a triumphal group photo was especially welcome for Brazilian President
The agreement was also an opportunity for the five countries to reiterate their dissatisfaction with the
Meanwhile, the share of the dollar in global foreign-exchange reserves remains more than 60 percent, while 85 percent of global foreign-exchange transactions involve dollars. Given the reluctance of underrepresented countries to sign up for the IMF's precautionary credit lines, central banks desperate for dollars can obtain them only from the Federal Reserve. The Fed was reasonably forthcoming in providing dollar swaps in the last crisis in 2008; but there is no guarantee that it will behave similarly in the future.
Thus, the BRICS' dissatisfaction with the status quo is understandable. The question is whether their NDB and CRA will make a difference.
The logic for the NDB is compelling. The BRICS, and developing countries generally, have immense infrastructure needs.
Moreover, there already is a proliferation of regional development banks, from the
There is no reason why the NDB should create problems, either. With initial capital of just
The CRA - intended to lessen the BRICS' dependence on the Fed and the dollar - is another story. The five participants agreed to earmark
But here the interests of prospective borrowers and lenders are not obviously compatible. The next BRICS country experiencing a crisis will want to draw on the CRA. But the other members will hesitate to lend more than token amounts, especially if there are repayment doubts. In contrast to development finance, the incentives of potential lenders and borrowers are not aligned.
Permitting the lenders to impose policy conditions on borrowers, and to monitor their compliance, can redress this problem. But imposing conditionality on sovereign states is a delicate matter - especially when the countries involved are as large, proud, and diverse as the BRICS. It is difficult to imagine
Other attempts to establish networks of swap lines and credits, such as the Chiang Mai Initiative, which was negotiated in the wake of the Asian crisis, have been bedeviled by the same problem. The Chiang Mai network is even larger than the CRA. But, given the divergent interests of lenders and borrowers, it has never been used - not even in 2008, at the height of the global financial crisis.
The architects of the Chiang Mai Initiative attempted to finesse the problem by requiring countries that draw more than 30 percent of their swaps to negotiate a program with the IMF. Ironically, the "Treaty for the Establishment of a BRICS Contingent Reserve Arrangement" contains exactly the same provision. So much, then, for the CRA as an alternative to the IMF. And, if inclusion of that provision was not revealing enough, then there is the fact that the BRICS' commitments to the CRA are expressed in US dollars.
The NDB makes sense for the BRICS, and it has a future. But the CRA is empty symbolism, and that is how it will be remembered.
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