Benn Steil

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Hurling BRICS at the World Bank and the $

by Benn Steil and Dinah Walker
July 21, 2014

brics bank world bank

Brazil, Russia, India, China, and South Africa (the “BRICS”) made a splash last week with the official launch of their new development bank.  The backers made no secret of their intention to challenge the way things are done in the established international financial and monetary architecture.

The irony is that India and China are the biggest beneficiaries of the current development bank architecture. They are the World Bank’s largest borrowers.  And Brazil is number 9.  As shown in the graphic above, these three nations have $66bn in World Bank loans outstanding, 32% more than the new BRICS bank’s entire initial subscribed capital of $50bn.  So it would appear that for the foreseeable future the World Bank will remain a considerably more important source of development financing for the BRICS than their own development bank.

At the bank’s launch, Russian president Vladimir Putin took a shot at the prevailing global monetary architecture, contrasting it with the BRICS’ vision.  “The international monetary system … depends a lot on the U.S. dollar, or, to be precise, on the monetary and financial policy of the U.S. authorities. The BRICS countries want to change this.” However, the entire paid-in capital stock of the new BRICS bank will be in U.S. dollars.  Just 10 percent of the World Bank’s paid-in capital was contributed in U.S. dollars; the rest was contributed in member countries’ national currencies. So whose currency regime is more dependent on the dollar?

Sixth BRICS Summit: Fortaleza Declaration
Macro and Markets: BRICS and Mortals
The Economist: An Acronym with Capital
International Bank for Reconstruction and Development: Information Statement

 

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Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”

Post a Comment 6 Comments

  • Posted by Imran Riffat

    Thank you for providing valuable clarity surrounding the myth of the newly created BRICS Bank.

  • Posted by John G.

    Seems like a smart move to me; offloading their trash — USDs — for something valuable — stakes in businesses or projects in developing countries.

    Kind of like what I did when I bought gold and silver long, long ago.

    Same thing with the Chinese buying real estate here in the U.S. or Vancouver.

  • Posted by Martin Chibanda

    Unfortunately some of the rhetoric that was put forward at the launch of the BRICS Development Bank was really tainted with some political agenda.

    To have a World Bank that is a unified representation of the world is a far better vision than trying to clutter the landscape with duplicates. It would have been better to see this new bank as simply another avenue or aid to the standing system as opposed to one that would challenge the current international system.

    Your article is right & paints quite an accurate picture!

  • Posted by AndrewA

    Why would the US via any conduit need to loan the BRIC nations any money at all? By their own accounts they are doing very well and will each overtake the US and the dollar in short order.

  • Posted by 14218136

    every country wants to do better than the previous years and doing the same thing and expecting different results is not the way. what the BRICS did was a smart move.

  • Posted by fortunate

    the dollar will not fall, and soon it is going to be the most powerful currency in the world

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