BRICS gains currency in Brazil

Jul 21 2014, 02:58 IST
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SummaryThe New Development Bank and Contingent Reserve Arrangement make a strong statement about the BRICS’s role in the management of the global economy

IMF. Currently, the US has 17.67% of the vote share and is in a position to veto any major decision of the IMF, which requires a supermajority of 85%.

The proposed reform in the management of the IMF would have shifted more than 6% of quota shares to dynamic emerging market and developing countries, and more than 6% from the over-represented to under-represented countries, while protecting the quota shares and voting power of the poorest members. As a result of these changes, China voting share was expected to increase from 2.928% in 2008 to 6.071%, while India’s share would have increased from 1.916% to 2.629%. Importantly, the share of the US would have declined to 16.498%, thus preventing it from vetoing any major decision.

The steps taken by the BRICS to establish their own financial institutions in the face of the US intransigence that prevents democratisation of the IMF could have a far-reaching impact on global economic governance. Members of the grouping should, therefore, be cognisant of the significance of this process of change that they have triggered on the global stage, while deliberating on the further details of the institutions.

At least the initial signs have been very encouraging, for the NDB is being established on the principles of shared ownership and responsibility. As regards ownership, the members of the group have agreed that they will have equal stake in the NDB. Each country will contribute equally to initial subscribed capital of $50 billion. The authorised capital of the BRICS Bank would be $100 billion. The membership of the Bank would be open to members of the United Nations, who will be able to subscribe to the shares of the Bank. However, the BRICS members’ share in the total paid up capital of the Bank (also their voting share) cannot be less 55%, thus ensuring that the founding members retain control over the NDB at all times.

The BRICS countries have also ensured that all the partners will have a stake in the functioning of the NDB. It would be headquartered in Shanghai, and here it must be said that India would have gained a lot if it was headquartered in New Delhi instead. South Africa will be the home of the NDB’s Africa Regional Center while the management of the new institution has also been shared between India, Russia and Brazil. However, India would get a significant opportunity to guide

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