BRICS countries consider challenging IMF by establishing $100 billion development bank

The acronym BRICS, which refers in economic terms to the five emerging market financial structures of Brazil, Russia, India, China and South Africa is indeed a strange classification, as it encompasses five very different nations with completely polarized business ethic, levels of development and relevance to global industry.

As far as the retail FX industry is concerned, from these nations, China and Russia are among priorities as home to a substantial target audience, much less so Brazil, India and South Africa.

With a number of western firms already gaining significant trading volume from the youthful and willing base of traders in Asia, with China providing a substantial contribution, there is still no sign of a national FX industry segment within China to cater to Chinese customers – on the contrary, the majority of Chinese traders prefer overseas FX companies. The same cannot be said for Russia, which has a number of domestic FX firms, including EXNESS and Alpari, all of whom are well known globally and have been established for a number of years on the world stage.

Despite the anomalies, the BRICS nations have begun to consider a combined effort to generate their own development bank, with $100 billion funding and a reserves fund of the same size in order to attempt to compete with western firms in their current dominance over financial markets.

The lack of structure in emerging markets is a major factor which constrains western market participants from operating in the regions, due to inflexible government rulings, and lack of recourse should anything go wrong. If implemented, the creation of a multinational monetary fund for the BRICS nations could go some way toward redressing the matter.

During an interview conducted by Reuters with the deputy governor of the Reserve Bank of India, Urjit Patel, Reuters established yesterday that Mr. Patel stated that “a point worth thinking about but has not been discussed” is whether the BRICS nations could at some point jointly intervene in FX markets to ease turbulence.

Mr. Patel said the new fund, known as the Contingent Reserves Arrangement or CRA, could include non-BRICS nations. The CRA, designed to help members deal with balance of payment problems, will “provide an extra bit of comfort” to emerging nations, he added.

“I think is an important signal that BRICS countries are willing to take the lead in changing the way we think about the financial architecture of the world,” said Patel on the sidelines of the BRICS summit in the coastal city of Fortaleza.

The two new institutions are the first major achievement of the BRICS countries since they started working together in 2009 to press for a bigger say in the global financial order created by Western powers and centered on the International Monetary Fund and the World Bank.

Reuters stated yesterday that Mr. Patel expressed that he does not expect quick ratification by the U.S. Congress of reforms to the IMF that would increase the weight of emerging nations in the global lender.

Emerging nations have discussed delinking the quotas from the governance reforms to facilitate its passage. However, he said India does not support that approach and wants complete approval of the reforms package.

“India’s position is that we are not in favor of delinking because then you lose the momentum for fundamental change that is required in these institutions,” he said.

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