BRICS countries to set up their own IMF

Very soon, the IMF will cease to be the world’s only organization capable of rendering international financial assistance. The BRICS countries are setting up alternative institutions, including a currency reserve pool and a development bank.

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. “Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory,” Lukov said.

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries’ economies.

By way of comparison, the IMF reserves, which are set by the Special Drawing Rights (SDR), currently stand at 238.4 billion euros, or $369.52 billion dollars. In terms of amounts, the BRICS currency reserve pool is, of course, inferior to the IMF. However, $100 billion should be quite sufficient for five countries, whereas the IMF comprises 188 countries – which may require financial assistance at any time.

BRICS Development Bank

The BRICS countries are setting up a Development Bank as an alternative to the World Bank in order to grant loans for projects that are beneficial not for the U.S. or the EU, but for developing countries.

Currency reserve pool

In addition, the BRICS currency reserve pool is a form of insurance, a cushion of sorts, in the event a BRICS country faces financial problems or a budget deficit. In Soviet times it would have been called “a mutual benefit society”, says Nikita Kulikov, deputy director of the consulting company HEADS. Some countries in the pool will act as a safety net for the other countries in the pool.

This structure should become a worthy alternative to the IMF, which has traditionally provided support to economies that find themselves in a budgetary emergency.

“A large part of the fund goes toward saving the euro and the national currencies of developed countries. Given that governance of the IMF is in the hands of western powers, there is little hope for assistance from the IMF in case of an emergency. That is why the currency reserve pool would come in very handy,” says ambassador Lukov.

The currency reserve pool will also help the BRICS countries to gradually establish cooperation without the use of the dollar, points out Natalya Samoilova. This, however, will take time. For the time being, it has been decided to replenish the authorized capital of the Development Bank and the Currency Reserve Pool with U.S. dollars. Thus the U.S. currency system is getting an additional boost. However, it cannot be ruled out that very soon (given the threat of U.S. and EU economic sanctions against Russia) the dollar may be replaced by the ruble and other national currencies of the BRICS counties.

Full article: BRICS countries to set up their own IMF (Russia Beyond the Headlines)

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