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Business News/ Money / Calculators/  De-jargoned: Brics bank
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De-jargoned: Brics bank

It's an institution that will provide multilateral development finance to the developing economies

AFPPremium
AFP

Last week, at the Brics (Brazil, Russia, India, China and South Africa) Summit in Brazil, a new development bank, called the Brics bank, was approved. Let us understand what it is.

What is the Brics bank?

The term Bric was coined in 2001 and in 2011, South Africa joined this emerging nations group and since then the five prominent emerging economies have been referred to as Brics. The new development bank or Brics bank was launched last week by these countries. The new development bank is an institution that will provide multilateral development finance to the developing economies. The main function of the Brics bank will be to provide money for infrastructure and sustainable development projects in Brics and other emerging economies, and developing countries. The countries will get support for public or private projects through loans, guarantees, equity participation and other financial instruments. The bank is designed to complement the existing efforts of multilateral and regional financial institutions for global growth and development. It will also cooperate with international organizations and other financial entities and provide technical assistance for projects to be supported by the bank. The new development bank will have an initial subscribed capital of $50 billion and an initial authorized capital of $100 billion. The shareholders and beneficiaries of the Brics Bank will be the member nations.

Its headquarters will be in Shanghai, China. The president will be named on a revolving basis and will have a term of five years. The initial presidency will be held by India. India’s presidency will be followed by Brazil and Russia, who will have a five-year term each. The first chairperson of the board of governors will be from Russia. The first chairperson of the board of directors will be from Brazil. South Africa will establish an African regional centre for the bank. The bank will start lending to its clients from 2016.

Contingent reserve arrangement

During the Summit last week, the Brics nations also signed a treaty to establish the Brics Contingent Reserve Arrangement. This is not a fund but an agreement to make foreign reserves available to the countries in trouble. It is an agreement with an initial size of $100 billion currency exchange reserve. This is to protect against short-term balance of payment pressures. Of the $100 billion, China will contribute the largest share of $41 billion. Russia, India and Brazil will contribute $18 billion each. South Africa will contribute $5 billion. Each member country can borrow different amounts from the $100 billion currency reserve. For instance, China can withdraw half the amount it contributes, i.e. $20.5 billion. Brazil, Russia, and India may withdraw the same amount they commit, i.e. $18 billion, while South Africa can tap $10 billion, twice its contribution.

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Published: 24 Jul 2014, 06:35 PM IST
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