BRICS Development Bank- How this can change Developing Countries Economy?

About BRICS and its Development Bank:

BRICS Development Bank is basically a proposed multilateral development bank which is to be operated by emerging developing countries named Brazil, Russia, India, China and South Africa that together constitute the BRICS consortium. Each of these nations account for about 1/5th of the economic activity in the world. They along with other non-developed countries have had painful encounters with the financial dominance of the West where they have been forced to make painful cuts in their budget and meet the stringent criteria to avail emergency loans from the International monetary fund (IMF) and World Bank.

Need and Purpose of BRICS Development Bank:

Tired of the US having the upper hand in the global economic scenario, five of the developing nations in the world have joined hands to come up with a new global financial system. They have named this bank as the BRICS Development Bank, each alphabet of BRICS standing for the initial of a member country. Let us understand more about the BRICS Development Bank, what are its key features and goals, its benefits, how will it operate and how can in contribute to bring about a change in these economies.

Thus, the 5 BRICS states confirmed the establishment of the BRICS Development bank on 15th July, 2014 at the sixth BRICS summit

BRICS Development Bank- How this can change Developing Countries Economy

BRICS Development Bank- How this can change Developing Countries Economy

that was held in Fortaleza, Brazil. This development bank will serve as an alternative to the International Monetary Fund(IMF) and the World Bank. The basic purpose of creating BRICS development bank was to create a set up for fostering greater development and financial cooperation among these five emerging markets and reduce dependence on IMF and World Banks which are controlled by US and western countries. Headquarter of the bank is to be established in Shanghai, China while India will head this Bank for first 5 years. The first chair of the Board of Directors will be coming from Brazil while the first chair of the Board of Governors will be coming from Russia.

Main Features and Benefits to Developing Countries Economy offered by BRICS Bank:

The chief objectives of the BRICS Development Bank is to create a Currency Reserve Arrangement worth US $100 Billion that will be used to aid the member countries in times of financial crisis. The bank will also be offering funds for infrastructure projects. The fund to be offered will comprise of $10 billion ($2 billion from each member country to be provided over a period of 7 years) that will be paid in capital while the additional $40 billion will be paid upon request. BRICS Development Bank will begin to lend funds from 2016. The bank is open to membership by other nations however the capital share of the BRICS countries will not go down below 55%.The fund availed from the BRICS Development Bank can be used by a member nation to fulfill their long term projects or to take care of the short term crisis without the need to go through Bretton Woods System. Thus, this bank free the developing nations from such compulsions that force them to compromise their national economic policies.

The benefits that appear from the BRICS Development System is that is has strictly followed the rule of one country, one vote. Thus, establishing equality among its member nations in the process of decision making. The expected rise in the interest rate that will be charged by US Federal Reserve will take away the money from the emerging markets and will rattle them to the core. At such a scenario BRICS will come across as a savior. BRICS Development Bank can work wonders for these BRICS economies by supporting the developing countries in a more robust manner than the World Bank or International Monetary Fund. It will strengthen the economy of these nations and make them emerge at a global level in a never seen before manner.


However, there are some concerns with the BRICS Development Bank. For example, the major concern is China. It is essential to sort out the currency domination of the loans because if they are meted out in Chinese currency, the Yuan will rise to become the next US Dollar. This will turn the world bipolar again. So, the bank must maintain the meting out of loans completely apolitical or it will only become a second World Bank or IMF.

It remains to be seen how the BRICS Development Bank will change the economic scenario of developing nations when it comes into effect, but high hopes are being pinned to it and hopefully the bank will live up to it.