In what looks like a teenager’s tantrum, the world’s biggest emerging economies have decided to create their own currency reserve fund. Brazil, Russia, India, China and South Africa (aka the BRICS) feel that they’ve been precluded from the governing of the global economy. Their response is to set up a new development bank with a startup capital of $100 billion, for which all members will contribute equally.
It is true that the BRICS have been denied their fair say in global economic institutions, such as the World Bank and the International Monetary Fund. Developed countries have acknowledged this for years. Sadly, yet unsurprisingly, they’ve done little to amend it. Taking this into account, it is easy to understand the motivation behind the BRICS’s fund. They will accumulate 2% of their joint reserves in a fund to be accessed when balance-of-payments problems arise.
This way, they will create a safety net similar to what the World Bank/IMF provide for countries when in need. The difference is, supposedly, the political strings attached that go along with help from said organisations won’t be there.
Of course, in reality, this will not be the case. These five countries have massively varied, and sometimes conflicting, interests. The also have close to nothing
For example, China and India. China will contribute a disproportionately large amount of funds. Some say close to $41 billion. It also recently proclaimed, that its border disputes with India are part of its “core national interests”.
You may think that this feels like a recipe for disaster. You’d never ask two children who are fighting to put their toys in the same box and share whenever they want to play. Not to be mean, or condescending, but when it comes to transnational economic interests, most countries act like children; they become selfish and, more often than not, careless.
What is more, this is not the only way for them to get what they deserve in terms of power in economic government.
In the past, their lack of a common goal and persistence on their individual national interests has made them look weak and scattered. In 2011 they failed to agree on a candidate for the IMF director position. A year later, the exact same thing happened with the World Bank. Had they been more united in their decision, they could have orchestrated the appointment of someone sympathetic to them.
Not that it is easy to find a European economist to lead the IMF who will be sympathetic to Russia, but allow me some imagination for argument’s sake.
What I’m trying to say is that the existing structure of international economics could be manipulated to their favour. The BRICS should be throwing their weight around in it, instead of starting to pull out. Creating another bank is not only unnecessary, but counterproductive. It will take time, effort and a great deal of monetary capital that needn’t be wasted.
Not to mention that it doesn’t really solve their problem. What they need is to get the respect they deserve when facing developed countries, such as the bullying clique of major European countries and the US. Creating a framework that doesn’t involve them doesn’t help with them. It can only lead to further isolation. They are, after all, taking their money and putting it in their own bank. This sends a very clear message; if you won’t play with us, we won’t play with you.
All in all, this is a rash and miscalculated idea. It fails to address an admittedly very serious problem. It may just end up blowing up in their faces in the near future. The BRICS should be looking for ways to prove their prowess in the battle that is already going on, not move their cavalry somewhere else to show off and leave the rest of the army to defeat.