BRICS Bank Officially Launches As Sun Sets On US Financial Hegemony

Zerohedge article

http://www.zerohedge.com/news/2015-07-08/brics-bank-officially-launches-sun-sets-us-hegemony

India also asks to be a full fledged member of the Shanghai co-operation organization.




Before the Asian Infrastructure Investment Bank and, to a lesser extent, the Silk Road Fund became international symbols for the end of Western economic hegemony, there was the BRICS Bank.

Or at least there was the idea of the BRICS bank.

The supranational lender imagined by Russia, China, Brazil, India, and South Africa is, like the AIIB, largely a response to the failure of US-dominated multilateral institutions to meet the needs of modernity and offer representation that’s commensurate with the economic clout of their members. As Bloomberg points out, the countries’ combined economic output is now roughly equal to that of the US. “Back in 2007, the U.S. economy was double the BRICS,” Bloomberg notes.

As a refresher, here’s how the Washington Post described the bank’s structure and purpose on the heels of last summer’s BRICS summit in Fortaleza:

The NDB has been given $50 billion in initial capital. As with similar initiatives in other regions, the BRICS bank appears to work on an equal-share voting basis, with each of the five signatories contributing $10 billion. The capital base is to be used to finance infrastructure and “sustainable development” projects in the BRICS countries initially, but other low- and middle-income countries will be able buy in and apply for funding. BRICS countries have also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems. The CRA—unlike the pool of contributed capital to the BRICS bank, which is equally shared—is being funded 41 percent by China, 18 percent from Brazil, India, and Russia, and 5 percent from South Africa.
On Tuesday, ahead of this year’s summit in Ulfa, the BRICS countries officially launched the new bank along with the reserve currency pool. Here’s WSJ:

The group of five major emerging economies known as Brics launched a development bank on Tuesday ahead of a summit in the Russian industrial city of Ufa, where Russia seeks to demonstrate it hasn’t been isolated by Western sanctions.

The long-planned development bank, aimed at financing projects mainly in member countries Brazil, Russia, India, China and South Africa, will select its first projects to finance by the end of the year, Russian Finance Minister Anton Siluanov said on Tuesday. The countries’ national banks also signed a deal Tuesday to create a $100 billion reserve fund by the end of July that can be tapped in financial emergencies.

The Bank of Russia said it signed an “operational agreement” with Brics counterparts to create a $100 billion pool of mutual reserves. The group agreed to create the fund in 2013 as an alternative to the International Monetary Fund, after seeing investors pull money away from emerging economies, causing their currencies to weaken.

The currency pool would be drawn on by the central banks of Brics states whenever they suffered a shortage of dollar liquidity, helping them maintain financial stability, Russia’s central bank said.

China will contribute $41 billion to the currency pool. Brazil, India and Russia will each provide $18 billion, while the remaining $5 billion will come from South Africa.
The BRICS nations will also look to begin settling more trade in national currencies, a shift we highlighted recently in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi”, “PetroYuan Proliferation: Russia, China To Settle "Holy Grail" Pipeline Sales In Renminbi,” and “De-Dollarization Du Jour: Russia Backs BRICS Alternative To SWIFT.” This comes at a convenient time for Russia, which is attempting to diversify away from the dollar amid Western economic sanctions (recently extended into next year) imposed on Moscow in retaliation for the Kremlin’s perceived involvement in Ukraine. RT has more:

BRICS countries will definitely start using their local currencies for mutual settlements quite soon, the head of Russia’s VTB bank Andrey Kostin told RT Wednesday at the BRICS summit in Ufa.

“We definitely see a growing interest from the countries to make settlements in local currencies,” the CEO of Russia’s second biggest bank said. 40-50 percent of all the mutual settlements among the BRICS countries can be performed in domestic currencies, Kostin estimated, RIA reported.

The Chinese yuan as the leading currency can be used in settlements among BRICS member states, Kostin said, adding that the Russian ruble can be used for that as well.

He says there will be a growing interest from leading Russian exporters to the process of switching to national currencies.