Could BRICS Bank help repair the International Financial Architecture?
BRICS Bank is not about bringing order to global financial disorder, but is mired in geopolitical realities as well. Even though the bank is in an embryonic state, it is gearing itself up to stand up to the Bretton Woods Institutions and neoliberal ideology with its south-centred, state-aided capital accumulation. How, if at all is BRICS Bank going to differ from seven-decades old institutions is a contentious issue?
One of the objectives of Contingent Reserve Arrangement (CRA), the idea behind BRICS Bank is to complement existing financial arrangements. At both the DurbanSummit in March and the G20 in Russia a month back, critical details like bank capitalization, institutional leadership and location could not be sorted out. It goes without saying that $50 Billion BRICS Bank capitalization and $100 Billion CRA would be pale in comparison to serious financial meltdowns. Add to that the 2013 economic upheavals in BRICS economies, thanks to US Fed’s Quantitative Easing, when BRICS currencies tanked and resulted in dramatic outflows of capital from the emerging markets, the honeymoon period for emerging economies culminated in recrimination. This deceleration means that the booming emerging economies will no longer make up for weakness in rich countries, according to magazine, The
According to Chinese economic experts, the BRICS bloc is already showing signs of rupture in material ways, leaving only China to push ahead through the storm. As Tsinghua University economist Li Dokui remarked, the end of the US Fed’s Quantitative Easing is “good news for the renminbi” because it need no longer rise in value – but meantime, “the concept of the BRICS may vanish, leaving just China versus other emerging economies”. According to Merrill Lynch economist Lu Ting, “China will be largely immune to the impact due to its sustained current-account surplus, low foreign debt, huge exchange reserves, high savings and capital controls”. But there are streaks of optimism, where fiscal austerity and credit constraint could elevate the mood in BRICS, even though strategies advocated have so far not had any discernible effect on the financial volatility.
Thus, it was genuine to ask if BRICS really posed a challenge to Bretton Woods Institutions. After all, there was an alternative already in place that they could have supported: the Bank of the South. Founded by the late Venezuelan president Hugo Chavez in 2007 and supported by Argentina, Bolivia, Brazil, Ecuador, Paraguay and Uruguay, Banco del Sur already has $7-billion in capital. It offers a more profound development finance challenge to the Washington Consensus, especially after Ecuadoran radical economists improved the design.
Most ironically, the “left-talk” that pervades most of BRICS foreign policy is countered by “walk-right” by Central Banks in these nations, thus rupturing further the North-South political confrontation, but at the same time unable to build an economic bridge.