Emerging nations have shown that they have the capabilities of successfully hosting global sporting events, such as the 2008 Summer Olympics in China, the 2010 World Cup in South Africa and the recently concluded 2014 World Cup in Brazil. However, these countries, which are a part of the BRICS bloc that also includes Russia and India has signaled they are ready to play a larger role in global affairs. They have announced the formation of a jointly run development bank called the New Development Bank and a $100 Billion currency reserve pool at the BRICS-UNASUR Summit held in Brazil. The New Development Bank has similar goals with the Bretton Woods institutions, which are the IMF and World Bank, which is to act as a proposed currency reserve fund if the BRICS run into balance-of-payments problems and also to provide loans for infrastructure projects in developing nations, but with the increasing role that the BRICS nations have in the world stage, the establishment of this institution shows the determination of the BRICS to set their developmental path independently from the Bretton Woods institutions which are traditionally dominated by wealthy western powers and reduce their influence in the developing world.
As pointed out by The Economist and CNN, the BRICS account for 40 percent of the world’s population, almost 20 percent of the world’s GDP and 17 percent of global trade but only two of the five BRICS countries have permanent seats at the UN Security Council and China, with its 1.3 Billion people have less voting power than smaller European nations such as the Netherlands and Belgium. BusinessWeek points out the treatment that the BRICS as insulting and anachronistic. Therefore, it is without a doubt that the creation of the New Development Bank is to increase the spotlight of the BRICS countries in global economic development. This struggle for global influence by the BRICS countries suggests that the New Development Bank is a rival to the Bretton Woods institutions, although this is something that has been denied by both parties. For developing nations, the establishment of the New Development Bank is a win-win scenario as it gives them more options to pursue loans to support their development goals. Joseph Stiglitz, a Nobel Prize-winning economist, supports this statement as there is still a massive need for infrastructure in the developing world, thus the presence of the New Development Bank is complementary to the existing presence of the Bretton Woods institutions. However, for western countries who dominate the Bretton Woods institutions, the creation of the New Development Bank serves as what CNN states as a wake-up call to conduct reforms to give developing countries a greater say in the IMF and World Bank or else they risk losing business to the New Development Bank.
Furthermore, an interesting note that observers should look at with the creation of the New Development Bank is the amount of influence China will have in the New Development Bank. Although leaders of the Bank are nationals of other BRICS countries, such as the President being an Indian national and the Board of Governors and Board of Directors a Brazilian and Russian, respectively, the bank is thought serve to assist more of China’s interest compared to other members. It is thought that China will use the New Development Bank as geo-political motivations. The geo-political motivations goes beyond being frustrated by a lack of voting power in the IMF and World Bank, but also to silence past criticisms of Chinese investments and aid in developing countries. Chinese aid has often been tied up with conditions regarding its foreign policy, such as countries that accept Chinese aid must not recognize the sovereignty of Taiwan. Moreover, Chinese investments have been criticized to neglect environmental and labor standards. According to George Yin, an expert of Chinese Foreign Policy in Harvard University, Chinese aid that goes through the New Development Bank can improve China’s image, as aid from the New Development Bank will be tied to minimum conditionality. Furthermore, as the role of the Chinese currency, the Yuan, in the global economy, increases; the New Development Bank can be used by China as a platform to make developing countries reduce their reliance on the U.S. Dollar and Euro and use the Yuan more for not just investment purposes but also for a reserve currency. China has a long-term goal of using the Yuan for such purposes as a widely accepted Yuan could reduce foreign-exchange risks implicated on Chinese companies.
To conclude, it can be implied that the creation of the New Development Bank by the BRICS is likely to address necessities in geo-political issues rather than economic ones. The functions of the New Development Bank can be sufficiently carried out by existing institutions but the BRICS want to sent a signal to the world that it is prepared to increase its influence in development issues in developing countries at the expense of the West. However, it must be noted that the presence of the New Development Bank is considered more as a complementary rather than a competition with the Bretton Woods Institutions. In addition, it will be interesting to observe the extent how China can prevent itself from exerting too much of an influence on the New Development Bank. Although hegemony or the dominant’s ability to make the others want the same thing as it wants for itself seems to be avoided by electing officials from other BRICS nations into executive roles, China is still the largest nation in the bloc that created the New Development Bank as well as the biggest contributor to the currency reserve pool. Considering what happened with the Bretton Woods institutions, it seems it would be surprising if the New Development Bank does not favor China’s interest.
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Shilling, A. Gary. "The BRICS Don't Need A Bank of Their Own." Bloomberg BusinessWeek 21 July 2014: 10. Print