Bonds, Currencies, Emerging Markets, Stocks

BRICs To Establish New Multi-Currency Financial Order

BRICS CurrenciesThe new BRICs initiatives break the monopoly of existing western institutions over the financial order – a very important symbolic change, as it’s the first time a global financial institution is led by developing countries, said experts to RT.

“If the new development bank experiment succeeds, it will show the world that the emerging countries can do and manage a multilateral economic institution by themselves,” Akshay Mathur, geo-economic fellow head of research at the Indian Council on Global Relations, told RT at the BRICs academic forum.

While talking about the bank’s challenge to western-dominated financial system, he said that one of its goals is to stimulate lending to countries in local currencies for the new projects in that region.

“Right now the bank has clauses in its charter to encourage lending in local currencies. It can do it for lending in the new projects in the East, for Russian projects in the ruble,” he said.

BRICs has already employed tools to move away from US dollar dominance, believes H.H.S. Viswanathan, Distinguished Fellow at India’s Observer Research Foundation.

“A lot of trade between China and Russia is already taking place in local currencies. As far as India is concerned, it’s not that advanced, but in some areas – yes, we are using local currencies,” he said adding that the main advantage of the banks’ moving away from the dollar is that trading in local currencies reduces the operational cost.

Risk of China’s Domination

Akshay Mathur also pointed out the potential risks the bank may face, cautioning that China, the largest of the five BRICs economies, could end up dominating the new financial institution.

China has already shown notable success in internationalizing yuan. It is issuing foreign loans in its national currency and has currency swaps with 21 countries.

“China is lending now more than the World Bank and the IMF combined in Africa and Latin America. So, what I mean about the risk of Chinese financial architecture is that we want to move to a more multilateral multi-currency equitable architecture, because now we have been moving from the risks of one currency [the US dollar – Ed.] to the risks of another,” he said.

The fact that the BRICs countries are setting up new institutions doesn’t mean that they are abandoning all of the existing ones, said Oliver Stuenkel, Professor of International Relations at Fundação Getúlio Vargas (FGV) in São Paulo.

“I don’t think the BRICs countries are fully betting on new institutions which may have dominance by China, but I think BRICs institutions will have more capacity to engage both institutions reducing the risk that one country dominates all of others,” he said.

Despite holding the pre-eminent position in the West’s economy, the World Bank is also in the process of adapting to the rise in influence of other less developed countries. BRICs group will actively encourage this trend by seeking to reform existing institutions, while at the same time creating new ones, he added.

Non-BRICs Participants

Apart from the BRICs, there are other countries showing interest in entering the new development bank, said H.H.S. Viswanathan.

“Already some European countries, particularly Scandinavian countries, Finland, have shown interest, although it’s North. There will be countries who will be interested. Because they think that it’s going to be a success,” he said, adding that the bank itself is interested in inviting new members.

The subscribed capital of the New Development bank is $50 billion, which means the BRICs countries allocated $10 billion each. The authorized capital is $100 billion, which means another $50 billion is expected from other interested parties, which may be countries or even other banks.

Brazil, Russia, India, China and South Africa established the New Development Bank, along with a reserve currency pool worth over $100 billion, during the 6th BRICs summit in July 2014. The bank will finance infrastructure projects in the BRICs and other developing countries, and is expected to begin operations by the end of 2015, with its headquarters in Shanghai.

Courtesy of RT


2 thoughts on “BRICs To Establish New Multi-Currency Financial Order

  1. Multicurrency market and e-trade technology of normalized economic mechanism (NEM) [1].

    To buy or sell a certain type of commodity any member of multicurrency market may choose a partner from any country with which there is a trade agreement. The choice can be made on e-trade portals where buyers and sellers place their offers. Price of any commodity may be presented in multiple currencies (of the allowed for this type of commodities).
    Sales tax (in currency that was used in trade deal) goes to the country that issued the license to sell the commodity [1, 3].

    Realization of the idea of multicurrency market would reduce the harmful effects of the economic crisis. Krugman made a similar conclusion when he wrote about the plight of some EU countries [2].

    Market prices are set in deals on twenty-four-hour operating e-trade portals. The beginning of a purchase and sale transaction is the signing of a typical contract (for this type of commodity).
    Banks-providers of the buyer and seller register the fact of signing the contract (the contract is kept in these banks together with the payment document). The seller does not have any rights to increase the price for this commodity after the moment of the signing (even if there are people who want to buy it at a higher price). The commodity itself does not matter. One of the necessary components of e-trade technology is the legal backing of purchase and sale transactions.

    Domestic e-trade is done according to the rules that are set by the laws of the state under whose jurisdiction the NEM-system operates. E-trade deals among economic agents from different NEM-systems should be done following the given obligatory rules:
    – the applicable set of currencies is represented by an intersection of the sets of currencies that are activated by central banks of the NEM-systems whose economic agents execute the deal;
    – restrictions should be made corresponding to the list of commodities that are allowed for import and export, as defined by law and by international treaties.
    Coordinating relations between countries are necessary while developing and implementing of the above rules. Any global regulators that are limiting the freedom of economic choice are not desirable.

    1. Ilyin, A.V., Ilyin, V.D. Towards a Normalized Economic Mechanism Based on E-services. Agris on-line Papers in Economics and Informatics. 2014, 6, No. 3, p. 39–49. [Online] Available from: [Accessed: 30 May, 2015].
    2. Krugman, P. What Ails Europe? The New York Times. 2012. [Online] Available from: [Accessed: 30 May, 2015].
    3. Ilyin, A.V., Ilyin, V.D. Trading with direct lending. 2014. DOI: 10.14357/08696527140415 .


    Posted by В.Д. Ильин | May 30, 2015, 6:05 pm


  1. Pingback: TOP NEWS: Week 05/25 – 05/31 - - May 25, 2015

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