BRICS BANK- Is it a threat to western financial institution?
Brics stands for the acronym of the five emerging economies of the world namely Brazil, Russia,India,China and South Africa.BRICS countries which account for almost 3 billion of world population is40% of the current world population. Of these countries which are a part of the BRICS,both India and China have been predicted to be dominant world players overtaking the current economic superpowers by 2050. Naturally a bank which account for such a large audience will be termed by the other nations as a financial institution which has a significant say in the Financial Politics of the world.
One of the most important point which needs to be taken into account is the currency of BRICS Bank(New Development Bank) is USD.This is used so that any transaction within the member nation or with any other nation would ultimately require USD(US Dollars) for transaction. Chinese Government prefer not using their currency (Yuan) over USD as this might appreciate their currency and can affect their exports. Also the US Dollar has a lot of credibility attached to the currency in terms relatively being stable currency when compared to the other major currencies in the word.
The BRICS Bank or the New Development bank was started with a initial capital of 50 billion Dollars with each country contributing 10 billion Dollars with equal voting rights with aim of providing capital for infrastructure or other financial help to the member nations. With the emergence of such a kind of institution there has been a lot of speculation about the emergence of BRICS bank as a threat to the western financial dominion.
Well to start with let’s start looking at the kind of relationship Russia shares with the US. Russia and the US have historically always had a sour relationship leading to a number of economic sanctions on Russia (former Soviet Union) most recently in the case of annexation of Crimean peninsula region. The Economic sanctions has crippled the Russian economy leading the identifying alternatives for financial help. With the course of time, this institution can act as financial backbone for the Russian Economy providing a backup for IMF and the World Bank where the US has the maximum sphere of influence. The BRICS bank can act as an alternative scheme of funding the Russian Economy in case of sanctions imposed on it by the Western Countries. Although historically there has always been an attempt in dividing the world into different groups by the former Soviet Union(current Russia) ,the other countries in the BRICS camp have always depended on IMF funding or in other words Western Countries backed financial help for growing their respective economy and any attempt to stop funding the IMF or the World Bank if most likely be initiated in the future by Russia will most likely to be opposed by the other member nations of the BRICS nation.
Considering the Economy of China which is primarily a manufacturing based economy, Western Countries have always been main markets for their exports. In any case of alienation from the Western Economies the GDP of China will be hugely impacted. In spite of not sharing a very healthy political relationship with the Western Economy and the Chinese Government trying to find new areas to market their products , the Chinese Economy in every sense is indirectly connected to Western Economy and any move opposing this will affect its economy in the long run . The BRICS bank can act as means of financing the ambitious plans of the Government in terms of large Infrastructure and Developmental projects such as the One belt One Road Initiative which aims at connecting the Europe,Africas and the Asian Countries. China as a part of the BRICS bank can be seen in a positive manner which is looking up to alternative source of funding.
Indian Government like the Chinese are hugely dependent on Western Economies to scale its sphere of influence. Current Stakeholders in both India and the Western Countries (major Western power like US ) have realized the potential of this relationship ,and have taken numerous initiatives to increase the bilateral trade between them. For a country like India, which has historically been hugely dependent on IMF and World Bank for financial help, the BRICS bank can act as an alternative funding mechanism but not as a replacement. FDI’s and other Investment opportunities from Western Countries are seen as relationship which can serve as a win-win solution for both the parties. Although the Indian Economy is showing positive signs of growth, even in distant future it cannot afford to undermine the importance of the Western Economies if it has to sustain its economy positively in the long run. India as a part of the BRICS nation will always veto any attempt of the BRICS bank if any in future to undermine the importance of western economies backed financial institution.
As far as the other member nations are considered such as Brazil and South Africa, their economies when compared to the other peers of the BRICS nation are on the similar lines, these economies are dependent on Western Financial backing for their growth and wont attempt in disturbing the interest of western countries.
Collectively put together all the aspects ,the western financial dominion will still hold the importance it currently holds and the origin of the BRICS bank will only necessitate the Western Economies to increase the accountability of the BRICS nation in all its policy decision and the IMF and World bank cannot act as the trump card and bargain the BRICS nation to adhere to all the whims and fancies of its policies which have always been made under the vested interest of the Western Backed Financial Institution.BRICS bank and the other major Western backed financial institution of the world will most likely coexist peacefully as this is in the best interest for all of them.