BRICS Summit outcome

BRICS nations have decided to examine the viability of a development bank for developing countries, besides agreeing to make life a little simpler for those trading within the grouping by settling transactions in local currency. But in both cases the outcome fell short of expectations as four members — India, Russia, Brazil and South Africa — seemed to fear the clout that China would enjoy if the proposal to set up a bank and move to a single currency went through. As a result, finance ministers have been tasked to study the feasibility of a multilateral agency modelled on the lines of the World Bank or the Asian Development Bank to generate resources for funding infrastructure and core sector projects in the BRICS nations as well as other emerging economies. The idea is also to ensure adequate financing during a period of global economic uncertainty. The joint working group will submit a report at the next meeting, a joint declaration said. The five countries signed a master agreement to ensure that purchases from the other members of the groups are settled in local currency. The move is being seen as a step towards replacing dollar as the main currency of trade. Once the arrangement is in place, funds routed through the five designated banks, an Indian buyer can make the payment to a Chinese supplier in yuan instead of first converting the rupee into dollars and then reconverting it into the Chinese currency. Although the summit may have ended a little short of expectations on the overall substance, the five countries were not short of words. They blamed the US and Europe for generating excessive liquidity in the global financial system as part of their strategy to boost local economic activity. On Wednesday, Brazilian president Dilma Rousseff had said that the steps taken in the developed countries had created “monetary tsunami” as most BRICS nations had to initiate measures to check excessive volatility in capital flows and commodity prices. “...it is critical for advanced economies to adopt responsible macro-economic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth that create jobs,” the Delhi Declaration said.