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BRICS and the New Financial Architecture
The BRICS summit held in October 2016 suggested the possible use of local currency in intra-BRICS trade to lower costs. This article extends this idea and proposes a scheme for setting up a clearing account in local currencies of the BRICS countries. It contends that such a step will provide avenues for generating additional demand within the region while cushioning the member countries against shocks from exchange rate volatility.
The initiatives taken by the member nations of BRICs (Brazil, Russia, India, China, and South Africa) to set up a new financial architecture at its eighth summit held in October 2016 in India have recently been under the spotlight. In order to avoid the International Monetary Fund (IMF) type of loan conditionalities and tackle the dominance of the United States (US) dollar in global finance, the new institutions set up by the BRICs are expected to provide a much needed change in the global financial architecture. These institutions include the New Development Bank (NDB), the BRICS-led Contingency Reserve Fund (CRF), and the Asian Infrastructure Investment Bank (AIIB).
At the summit, measures outlining the potential of these new institutions were announced. It is not an insignificant achievement that the NDB, which started its operations in July 2015 with an initial authorised capital of $100 billion, has already been disbursing loans, which include $300 million to Brazil, $81 million to China, $250 million to India, and $180 million to South Africa for renewable energy development projects (RT 2016).
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