It seems to be a golden period for China with yet another non-Bretton Woods institution challenging the West-dominated international financial institutions which have controlled the global financial system post 1945. Two days after 50 countries signed on to become members of the China-led Asian Infrastructure Investment Bank, the Chinese Parliament has ratified the creation of the New Development Bank of BRICS countries. The parliaments of India and Russia have already ratified the NDB, which will be headquartered in Shanghai, and will have an Indian as the CEO of the newly created institution. The NDB will be formally launched at the 7th BRICS summit in Ufa, Russia, on July 7-9.
With the setting up of these two banks, China has scored a point against the US and the West which have been ignoring the BRICS’ appeal for greater voting rights in the IMF and reform of global financial governance system. The NDB’s shareholding is on an equitable basis, with China, India, Brazil and South Africa contributing 20 per cent of the start-up capital of $50 billion, with a goal to reach a capitalization of US$100 billion.
Each BRICS country has one vote, but China’s massive foreign exchange reserves gives it an added leverage to shape decisions of the Bank. In AIIB, China is, however, the largest contributor, with voting share of 26.6 per cent.
The NDB will provide money for infrastructure and development projects in BRICS countries, and in the larger developing world. Each nation will have an equal say in the bank’s management, regardless of its economic size and position in the world. The launch of the NDB is seen as a challenge to the developed world and intends to break the domination of the Bretton Woods institutions in global development finance where the BRICS countries do not have much influence or clout there.
BRICS represents 42 percent of the world’s population and roughly 20 percent of the world’s economy based on GDP, and 30 percent of the world’s GDP based on PPP, a more accurate measure of real economic performance. Total trade between the countries amounts to $6.14 trillion, or nearly 17 percent of the world’s total.
The formal launch of NDB and AIIB is set to recast global financial landscape. Some will contend that 2015 seems to be the year of China when it became a game changer by hosting two new multilateral banks of the global South.
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