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?
This piece is cross-posted from CFR.org with permission.