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  • BRICS leaders create development bank

    The leaders of the group of five BRICS (Brazil, Russia, India, China and South Africa) emerging market countries signed on Tuesday a deal to create a new development bank and anemergency reserve fund, Brazil's President Dilma Rousseffannounced at a summit of the group here.

    "The agreement towards setting up the BRICS New Development Bank is a significant step. I am happy the initiative announced in 2012 in Delhi has become a reality," Prime Minister Narendra Modi said.

    The new bank will be headquartered in Shanghai, China. The first president of the bank will be from India while the first chair of the board of governors will be from Russia.

    Sources said India's demand for an equal share in the bank has also been accepted.

    The deal was reached after intense last-minute negotiations to settle a dispute between India and China over the headquarters of the new bank, which will have initial capital of $100 billion to invest in infrastructure projects.

    The impasse reflected the difficulties that BRICS nations face in working together to build an alternative to Western-run multilateral institutions that have shaped world finances since the end of World War-II.

    Failure to agree on the headquarters would have been an embarrassment for the BRICS, a group better known for its anti-Western rhetoric than agreement on concrete actions to reshape the world's financial architecture.

    An official, who declined to be named, said leaders changed their positions late on Tuesday night and agreed to sign the deal.
    Source: BRICS leaders create development bank | Business Standard News

    Was hoping for the HQ to be in India, disappointed with that bit. Anyway I am not sure if this bank can make any significant impact until India and China can resolve their border disputes, if there is not much co-operation between the two heavyweights this will be just another failure IMHO.

  • #2
    They need to agree on a currency other than the US dollar

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    • #3
      Originally posted by anil View Post
      They need to agree on a currency other than the US dollar
      I agree, this might be another hurdle that they have to find a solution sooner than later. Maybe if not a common currency I am guessing they might go with using the currency of whichever they trade with. For eg: Indian exports to China and China's exports to India would be in done with Yuan and Rupees. Same with the other countries.

      But how effective can this bank will be ? One of the good things with the system is where all members have equal say and voting rights which is not the case with WB or IMF where it's the biggest contributor that dictates terms.

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      • #4
        There are a lot of Swiss Francs around. ;)
        No such thing as a good tax - Churchill

        To make mistakes is human. To blame someone else for your mistake, is strategic.

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        • #5
          Originally posted by Doktor View Post
          There are a lot of Swiss Francs around. ;)
          Haha.. That may not be a bad idea. After all a lot of Indian's use Swiss banks to deposit their black money. If BRICS agree to use Francs and in return Switzerland agrees to give all the black money of the member countries to the origin country ;) not a bad idea at all ..

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          • #6
            Originally posted by commander View Post
            But how effective can this bank will be ?
            If China gets a green light into infrastructure projects in India, quite good. They are in competition with Japan to get projects in India. We have a PM who wants 100 smart cities that will be linked.

            This is a way for China to attract business in the infrastructure sector in BRICs countries, they have loads of experience and will provide loans. They did similar with the US, as in we will lend you money to buy from us.

            All this talk about border is a front to drumming up infrastructure business in India. i don't expect progress on the border as its an intractable problem and will take time. There have been over 18 meets and nothing much to show for. If business leads work then we can expect less disturbances, less attention by the media and if it does not get talked about then its like a tree falling and if no one is there then there is no sound.

            An interesting side note about Indo China relations, started after the 1991 crisis where we went to Singapore & Japan for loans. They said normalise relations with China, until then things were pretty much in a deep freeze. The only reason for India to talk to China is other Asian members wanted it at the time.
            Last edited by Double Edge; 16 Jul 14,, 18:47.

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            • #7
              Originally posted by commander View Post
              Haha.. That may not be a bad idea. After all a lot of Indian's use Swiss banks to deposit their black money. If BRICS agree to use Francs and in return Switzerland agrees to give all the black money of the member countries to the origin country ;) not a bad idea at all ..
              I see that you are still chasing the "Swiss Black Money" dream.
              "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" ~ Epicurus

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              • #8
                Originally posted by antimony View Post
                I see that you are still chasing the "Swiss Black Money" dream.
                mr. banker what is your take on this latest development ?

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                • #9
                  Originally posted by antimony View Post
                  I see that you are still chasing the "Swiss Black Money" dream.
                  That was meant to be a joke o_O

                  Comment


                  • #10
                    Originally posted by Double Edge View Post
                    mr. banker what is your take on this latest development ?
                    I can be hardly called a "banker" nowadays :)

                    There is no "development".

                    There has been an announcement that we would have yet another multilateral development bank, probably because we are unhappy with WB and IMF ( and I can certainly understand the statement). But with a corpus size of only $100 Bn and with total loans of only $5 Bn? That's peanuts for the combined economic scale of BRICS, which means they are not committing any major resources towards this.

                    Another big problem is this:
                    Failure to agree on the headquarters would have been an embarrassment for the BRICS, a group better known for its anti-Western rhetoric than agreement on concrete actions to reshape the world's financial architecture.
                    As I said, I certainly like the idea of getting more proportional representation of the BRICS nations, but one problem I perceive is that while the BRICS face common problems, they are most likely going to have widely different solutions. The countries that control IMF and WB are actually quite similar in terms of shared culture, economies and trade while the BRICS nations are vastly different, and occasionally sparring with each other.
                    "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" ~ Epicurus

                    Comment


                    • #11
                      Originally posted by antimony View Post
                      I can be hardly called a "banker" nowadays :)
                      Better than being called 'bankster'

                      Originally posted by antimony View Post
                      There is no "development".

                      There has been an announcement that we would have yet another multilateral development bank, probably because we are unhappy with WB and IMF ( and I can certainly understand the statement). But with a corpus size of only $100 Bn and with total loans of only $5 Bn? That's peanuts for the combined economic scale of BRICS, which means they are not committing any major resources towards this.
                      For starters, nothing to say it cannot grow.

                      Originally posted by antimony View Post
                      but one problem I perceive is that while the BRICS face common problems, they are most likely going to have widely different solutions. The countries that control IMF and WB are actually quite similar in terms of shared culture, economies and trade while the BRICS nations are vastly different, and occasionally sparring with each other.
                      There will be an adjustment period, like any marriage, 5 ways at that.

                      Saw this op-ed in my daily today, talks about vision, intent & motivations. Provocative title but the author does have some cred.

                      Ending west's hegemony | DH | Jul 25 2014
                      Shyam Saran, jul 25, 2014, IPS :

                      The sixth BRICS Summit in Fortaleza, Brazil, on July 15, marks the transition of a grouping based hitherto on shared concerns to one based on shared interests.

                      Since the inception of BRICS (bringing together Brazil, Russia, India, China and South Africa) in 2009, it has been seen as a mainly flag waving exercise by a group of influential emerging economies, with little in terms of convergent interest other than signalling their strong dissatisfaction over persistent western dominance of the world economic, financial as well as security order, but unable to fashion credible alternative governance structures themselves.

                      However, with the Fortaleza Summit finally announcing the much awaited establishment of the New Development Bank (NDB) with a $50 billion subscribed capital and a Contingency Reserve Arrangement (CRA) of $100 billion, the monopoly status and role of the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – stand broken.

                      True, it may take the NDB and the CRA considerable time and experience to evolve into credible international financial institutions but that clearly is the intent. BRICS leaders have kept the door open for other stakeholders, but will retain at least a 55 per cent equity share. They have also been careful to declare that these new institutions will supplement the activities of the World Bank and the IMF, and this has also been the initial response from the latter.

                      Nevertheless, the emergence of an alternative source of financing with norms different from those followed by the established institutions will alter the global financial landscape irreversibly. It may be noted for the future that the one component of the global financial infrastructure where western companies still remain supreme is the insurance and reinsurance sector. Global trade flows, in particular energy flows are almost invariably insured by a handful of western companies which also determine risk factors and premiums.

                      In Fortaleza, the BRICS countries have given notice that they will examine the prospect of pooling their capacities in this sector. A more competitive situation in this sector can only be a positive development for developing countries.

                      The BRICS initiatives were born out of mounting frustration among emerging countries that even a modest restructuring of the governing structures of the Bretton Woods institutions, to reflect their growing economic profile, was being resisted. The commitment made in 2010 at the G-20 to enlarge their stake in the IMF remains unfulfilled while the restructuring of the World Bank is yet to be taken up.

                      The longer the delay in such restructuring, the more rapid the consolidation of the new BRICS institutions is likely to be
                      . It is this factor which played a role in helping resolve some of the differences among the BRICS countries over the structure and governance of these proposed institutions.

                      China’s push

                      The setting up of the BRICS institutions owed a great deal to the energy and push displayed by China. It is doubtful that the proposals would have been actualised had China not put its full weight behind them and showed a readiness to accommodate other member countries, in particular India. Russia became more enthusiastic after being drummed out of the G-8 and subjected to western sanctions.

                      Chinese activism on this score must be seen in the context of other parallel developments in which China has also been the prime mover and sometimes the initiator. These are: The proposal for setting up an Asian Infrastructure Investment Bank (AIIB) to fund infrastructure and connectivity projects in Asia, in particular, those which would help revive the maritime and land ‘Silk Routes’ linking China with both its eastern and western flanks. The parallel with the NDB is hard to miss.

                      Secondly, the consolidation of the Chiang Mai Initiative Multilateralisation (CMIM) and the associated Asian Multilateral Research Organisation (AMRO) among the Association of Southeast Asian Nations (Asean) + 3 (China, Japan and the Republic of Korea). The CMIM is now a $240 billion financing facility to help member countries deal with balance of payments difficulties.

                      Thirdly, in addition to the CMIM and the AMRO, there are ongoing initiatives within Asean + 3 to develop a truly Asian Bond Market which could mobilise regional savings into regional investments through local currency bonds. To support this initiative, a regional Credit Guarantee and Investment Facility has been established. A Regional Settlement Intermediary is proposed to facilitate cross-border multi-currency transfers.

                      These developments are taking place just when there is a rapidly growing Chinese yuan-denominated bond market, the so-called dim-sum bonds, which have become an important source of corporate financing. This reduces the dependence on euro and US dollar-denominated bonds. The NDB could tap into this market to build up its own finances.

                      It is important to keep in mind this broader picture in assessing the significance of the decisions taken at the Fortaleza Summit. In systematically pursuing a number of parallel initiatives, China is attempting to create an alternative financial infrastructure which would have it in the lead role. The dilemma for other emerging countries is that there appears to be no credible alternatives, especially since the western countries are unwilling to cede any enhanced role to them.

                      The Fortaleza Summit marks the beginning of the end of the post-Second World War western dominance of the global economic and financial order. The existing institutions will now have to share space with the new entrants and may be compelled to adjust their norms to compete with the latter.

                      The prime mover behind the establishment of a rival network of financial institutions is China, whose global profile and influence is likely to increase as the various building blocks it has put in place come together to shape a new global financial architecture. This is still in the future but the trend is unmistakable.
                      Last edited by Double Edge; 25 Jul 14,, 17:42.

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                      • #12
                        Replacing/Diminishing the US Dollars, as the World's Reserve Currency, is a very dangerous game.

                        Saddam tried it, and he's dead.

                        Qaddafy hinted at the same idea. He's dead also.

                        The BRICS nations are much more stronger than Iraq and Libya. This game is going to be quite bloody !

                        Comment


                        • #13
                          Originally posted by SriLanka View Post
                          Replacing/Diminishing the US Dollars, as the World's Reserve Currency, is a very dangerous game.
                          Trading sanctions like the one on Iran presently will be harder to maintain (in theory) ten years from now if an alternative payments regime exists.

                          See this

                          There are some U.N. authorized sanctions, but almost all the sanctions are in fact unilaterally concerted between the United States and our European allies and they are enforced by SWIFT, which is the clearinghouse for dollars that operates in, I think, Belgium and they reflect our sovereign control of the dollar.

                          Now, our use of that control, particularly in the case of Iran to disrupt the oil trade for India, China, Korea and other major consumers of Iranian oil, has been mighty annoying to those countries. And it has driven them to begin to consider ways of avoiding clearance through SWIFT and New York, the New York banking system. And at Fortaleza in Brazil a few days ago, Monday I think, July 15th last week, the so-called BRICS, that is Brazil, Russia, India, China and South Africa, agreed on the establishment of a new development bank to parallel the World Bank and a new currency reserve to parallel the IMF. And along with this, they are all agreeing on new currency clearance procedures which avoid the dollar.
                          Last edited by Double Edge; 15 Aug 14,, 18:29.

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