Bonds, Currencies, Emerging Markets

Russia Proposes Launching BRICS Global Bond

 

BRICS (1)

Russia’s Central Bank is discussing with fellow BRICS emerging market nations — Brazil, (Russia), India, China, and South Africa — on the creation of BRICS global bonds, the Central Bank’s First Deputy Governor Sergey Shvetsov said on Wednesday, Russia’s TASS News Agency reports.

“We are looking for the point where we have mutual interests, the New Development Bank (NDB) has been established, we have created mechanisms to support foreign exchange reserves of each other,” Shvetsov said.

“Now we are talking about the creation of so-called global bonds which would have same rules for all five countries. If we issues bonds under these rules and list them on one of the exchanges, the remaining counties automatically get access to trade in these bonds,” he said.

In July 2015, the BRICS launched their $100 billion New Development Bank (NDB) — also known as the BRICS bank — and signed an agreement on their $100 billion currency reserve pool — also known as the Contingent Reserve Arrangement (CRA).

The BRICS bank will be used to finance new infrastructure and development projects in the BRICS countries, in addition to other emerging market countries.

The launch of the BRICS bank is seen as a first step in breaking the dominance of the U.S. dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both U.S.-based institutions that BRICS countries have had little influence within.

The BRICS and other emerging market economies have pleaded for years for a larger presence in the IMF.

In November 2010, the IMF’s Executive Board approved far-reaching reforms on the way that the IMF is run (Quota and Governance Reforms).  However the reforms were long stalled in U.S. Congress amid Republican concerns that they would diminish U.S. influence at the IMF.

On December 18, 2015 the U.S. Congress adopted the legislation to authorize the IMF’s 2010 Quota and Governance Reforms.

Finally, this week, on January 27, the IMF officially announced that the Quota and Governance Reforms were approved, which paved the way for Brazil, Russia, India, and China to enter as the top 10 largest members of the IMF for the first time ever.

China will have the third largest IMF quota and voting share after the United States with 16.74 percent and Japan with 6.23 percent.

The U.S. is the biggest member of the IMF and is the only one to have a veto, as 15 percent is a blocking share.

Despite the increased quotas, BRICS countries will still only have a 14.7 percent voting share, not enough for a veto.

The BRICS group was established in 2010, when South Africa joined Brazil, Russia, India, and China in what was previously known as BRIC.

As of 2015, the five BRICS countries represent over 3 billion people, or 42 percent of the world population; as all five members are in the top 25 of the world by population, and four are in the top 10. The five nations have a combined nominal gross domestic product (GDP) of $16.039 trillion, equivalent to approximately 20 percent of the gross world product, and an estimated $4 trillion in combined foreign reserves.

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