A new international financial institution has been announced. Brazil, Russia, India, China, and South Africa (known as the BRICS) said this week at a summit in Brazil that they are creating a new monetary fund focusing on developing nations and infrastructure.
The BRICS announced a $100 billion fund to fight financial crises, and will also start a World Bank alternative called the New Development Bank. All five will invest equally in the new lender, with other countries to be added later. The new bank will be headquartered in China.
Although the BRICS are vastly different in outlooks and goals, they share one thing in common: they feel the World Bank and International Money Fund haven’t been giving them enough say-so in their monetary decisions, but have been giving the US and Europe too much clout.
Thus, they are launching a venture they hope will create a new opportunity to get out from the grip of Western bankers, and provide a financial alternative if sanctions and/or other steps are taken to maneuver them into Western-desired outcomes.
There’s no immediate threat to the existing world financial order by the formation of this new organization, and the World Bank actually issued statements welcoming the newcomers. But make no mistake — in the long game, this is yet another shot across the bow against the US dollar as the world’s reserve currency, and continues to divide the world into “us versus them” camps, never a good thing when it comes to politics or monetary wrangling.
Politics Plays a Role
Some of the reasoning behind the new bank is political. Russia was not pleased that the World Bank and IMF backed the Ukrainian government with $13 billion in loans to help it move further away from the Russian orbit. Some of it is purely structural — the World Bank/IMF is dominated by European and US leaders, who naturally look to their friends and neighbors first with assistance. That’s not territory that the BRICS particularly care about supporting.
Mostly, this is something the BRICS do because they can, and they feel it adds to their options. It gives the BRICS a court of last resort for their pet projects, and means that deals can be made without arm-twisting their Western rivals. It’s not particularly needed, as they’ll compete with the World Bank and private capital that is readily available to the international community, and the BRICS nations don’t have anything close to a united agenda. Still, it can’t be ignored.
The IMF isn’t being abandoned. China is the third-largest contributor to the IMF, with Brazil, India, and Russia all in the top ten. The US is the biggest shareholder, with 16% of the $223.2 billion fund. But the BRICS are all putting in more capital to their new toy than they did to the IMF.
That larger contribution at least shows they are serious about changing the international system that has existed since the end of World War II. Will they eventually abandon it entirely? Not likely, but this is one step further down the road toward that.