Jul 23 2014
The BRICS Bank: Keep the Door Open
By Ye Yu
Since the talk of establishing a development bank in the 2012 summit, BRICS members have emphasized that this new institution would served as a complement to the multilateral and regional financial institutions that contribute to global growth and development. But outsiders still remain doubtful, thinking that the bank is instituted to replace the World Bank.

Out of the capacity, interests and strategic concerns, the BRICS bank needs to keep its door open.
Firstly, capacity replenishment. The BRICS lacks the experience relating to the establishing and functioning of a regional development bank and needs to draw on existing mechanisms. The testing cases in Latin America are too politicized to be regulatory.

Secondly, interest advancement. As a group of developing countries, the BRICS cannot acquire 3A credit ratings for its development bank, hampering its ability of financing. With its equity open to bid by developed countries, the bank can diversify its sources of finance on the one hand, and improve its credit ratings and competitiveness in the international capital market on the other.

Thirdly, fostering cooperation and competition. The bank provide loans not only to its member states, but also other developing countries, meaning that it will face possible competition with the World Bank and other regional development banks. An open-door policy will help avoid malicious competition and promote cooperation.

Fourthly, strategic consideration. The West is doubtful of the claim that the development bank is a preventative mechanism. To dispel such doubts requires more confident and constructive efforts by the BRICS members. From a Chinese perspective, we need an all-encompassing mechanism for interaction which contributes to BRICS cooperation and the new type of Sino-US relations. BRICS cooperation is playing an increasingly important role as a third-party agenda in enhancing mutual trust between China and the United States.

How to keep the door open?

Firstly, strategic coordination. For example, the member states should promote coordination between the BRICS bank and other existing multilateral development banks. The six-point coordination principle between the IMF and regional financing arrangements adopted at the 2011 G20 ministerial meeting can serve as a reference for the BRICS bank. Moreover, it is advisable that member states invite experts from Europe, the United States, and the World Bank into the process of institution-building for the bank to increase transparency, dispel doubts, improve scientificity, and reducing the potential conflicting point in loan terms between established and emerging institutions.

Secondly, project cooperation. The bank can cooperate with established institutions like the World Bank on joint financing projects to reduce risks. This is a learning, borrowing and innovation process. It can only materialize with the mutual willingness from established and emerging institutions. World Bank leaders have publicly welcome the establishment of the BRICS development bank, but it still remains to be seen whether it is willing to cooperate.

Thirdly, knowledge exchange and experience sharing. The World Bank excels in terms of global operational experience but does not have much advantage in indigenization. The BRICS development bank is established on emerging markets’ rich experience in development and economic growth, providing not only alternative views and paths other than existing institutions but also room for cooperation between emerging and established institutions. 

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