Could a ‘BRICS Bank’ Displace The World Bank And IMF?

As the leaders of the BRICS (Brazil, Russia, India, China, and South Africa) nations meet in Durban for their annual summit, proposals have emerged for the creation of a new development bank to rival the World Bank, and possibly even the IMF. Such a bank would have far-reaching consequences for the global economy, as a real alternative to the Western-dominated World Bank and IMF. In Business Monitor Online today, we discuss the implications of a ‘BRICS Bank’.

The Rationale For A ‘BRICS’ Bank

There are three main factors:

  • The World Bank and IMF were created in 1944, before World War II ended, and they remain Western-dominated. China, Russia, Brazil, and India want a greater say in global financial institutions, and if the existing ones do not accommodate them sufficiently, these countries will set up their own.
  • BRICS countries can now afford to set up a new global development bank, with US$4.4trn of foreign currency reserves (US$3.3trn of which is owned by China). Most of them also have experience dealing with financial crises (their own).
  • BRICS states are generally becoming more assertive in defending their interests, and perceive themselves to be emerging or re-emerging world powers.

Reports suggest the proposed BRICS Bank would be focused on infrastructure development. However, there is speculation that there will be a pool of foreign currency reserves for the purposes of rescuing countries from financial crises. Assuming a BRICS Bank gets going, it is unclear whether it would impose the same tough criteria on borrowers as the World Bank and IMF.

Potential Obstacles To BRICS Bank’s Management

The biggest challenge will be determining which country has the greatest say in how the bank is run. The main obstacles to collective action by BRICS states are as follows:

  • Geopolitics: Russia and China are geopolitical rivals, as are China and India.
  • Divergent economic interests: The BRICS states vary hugely in their wealth, development levels, financial resources, trade dynamics, etc.
  • Lack of ideological coherence: The BRICS states also differ considerably in their politico-economic systems.

All of the above means any BRICS Bank would be riddled with internal tensions, which could limit its cohesion and effectiveness. In any case, countries like China and Russia could still provide direct assistance to other states outside the framework of a BRICS Bank.