To reduce reliance on Western financial institutions, leaders of five of the world’s emerging economic powers Brazil, Russia, India, China and South Africa, so-called BRICS nations agreed to create a development bank to help fund their $4.5 trillion infrastructure plans.
The idea of a BRICS Development Bank was first proposed at the 4th BRICS summit in New Delhi, India last year.
The 5th BRICS summit in Durban also endorsed creation of a $100-billion Contingent Reserve Arrangement (CRA) amongst BRICS countries that will be deployed when any of the five member-nations faces a crisis. As regards the contingency reserve arrangement, Indian Finance Minister P. Chidambaram said the bulk of the money, that is $41 billion, will be pledged by China, $18 billion each will come from India, Brazil and Russia, while South Africa has agreed to $5 billion.
Brics nations represent a fifth of global gross domestic product, 43% of the world’s population and a total foreign-currency reserves of $4.4 trillion.
Trade within the emerging powers group surged to $282 billion last year from $27 billion in 2002 and may reach $500 billion by 2015.
Goldman Sachs Asset Management Chairman Jim O’Neill coined the BRIC term in 2001 to describe the four emerging powers he estimated would equal the U.S. in joint economic output by 2020. Brazil, Russia, India and China held their first summit four years ago and invited South Africa to join their ranks in December 2010.
“The BRICS bank, the setting up of which was approved by the group’s leaders today, could become a World Bank in future due to the increasing influence of emerging countries … If, in fact, the BRICS bank is announced, this will be the beginning of an institution that sort of becomes a World Bank for their huge sphere of influence,” Jim O’Neill, chairman of Goldman Sachs Asset Management said today.
He said the BRICS countries achievements were “remarkable” as their collective GDP in 2011 increased by around $2.3 trillion, which is equivalent to the size of Italy’s GDP. “By 2015, if not before, the combined size of the BRICS economies seems highly likely to become as big as the US and they are set to become as big as the G7, as we assume, by 2027,” O’Neill said.
The next BRICS summit will be in Brazil in 2014, but the leaders will meet in Russia on the margins of the G20 in September.