India to preside over BRICS Bank

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The 6th BRICS summit concludes in Fortaleza (Brazil) with the much awaited creation of $100 billion development bank. The bank will act as a counterweight to western-dominated global financial lenders like World Bank and IMF.

Key Points

  • The name of the institution 'New Development Bank' has been coined by the Indian PM Narendra Modi.
  • The 5-nation group of emerging powers also set afoot a Currency Reserve Pool worth $100 billion meant to help countries recover from short-term liquidity pressures.

The Negotiations

  • India and China were in a neck to neck tussle over who get to host the bank. 
  • A compromise formula was reached at the eleventh hour giving India the Presidency for six years while China, thanks to its economic might, get to house the Bank at Shanghai.
  • The presidency will then pass on to Brazil, Russia, South Africa and ultimately China for subsequent 5-year terms completing the cycle.
  • The post of Chairman has gone to the Brazil for the first 5-year.
  • China wanted a higher contribution from itself in order to weild a greater influence - a move staunchly resisted by India and Brazil.
  • China ultimately caved in to the demand of equal contribution from each side.

Objectives

  • The Bank will help finance infrastructure projects in developing nations.
  • The financial lender will begin operation with an initial subscribed capital of $50 billion - with $10 billion each from 5 members.
  • The bank is expected to make its first loan in 2016.

Currency Reserve Pool

  • China will be the biggest stakeholder here with a contribution of $41 billion out of a total of $100 billion. 
  • However, It has been restricted from drawing more than half of its contribution - just to bring in a degree of equity.
  • India, Russia and Brazil will contribute $18 billion each and are free to draw as much.
  • South Africa, the smallest donor with just $5 billion, is the biggest gainer with mandate to draw the double of the contribution.

Moreover

  • BRICS is an acronym for five large and emerging economies of the world namely Brazil, Russia, India, China and South Africa.
  • BRICS countries account for 21 percent of global economic output, and about half of world's population.
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