At a July summit, the BRICS — Brazil, Russia, India, China and South Africa — established its own development bank, to the tune of $100 billion, as well as a reserve-currency pool of about the same size. China’s contribution to both is much more than anyone else’s.
A post-modern world is looking for a capital model that can deliver stability of finance and much-needed infrastructure financing.
The modernist institutions established at the end of World War II by the Bretton Wood agreement governed commercial and financial relations among the world’s industrial states in the mid-20th century. It’s no longer the best of fits. But you can’t argue with a record of accomplishment evidenced in a remade Europe, the virtual end of colonialism and imperial states and global middle-class growth.
At the end of World War II near half the world’s productive capacity was found in the United States. Today multi-national corporations account for over 33 percent of world output and 66 percent of world trade.
At the end of the day, though, it makes it tough to move away from the dollar. And there have been other regional development banks in the past. They succeed or fail based on good governance, i.e., the degree to which political considerations can be kept out of loan decisions.
The smallest countries tend to resist reform to current global institutions, it’s said. They would tend to lose what small influence they now have to mid-tier countries like some of those in BRICS. The winners of World War II, all things being equal and though they pay for it, would prefer to keep their current out-size influence.
What’s important is establishing the secure environments – financial, political and technological – so that infrastructure, institutions and media are there to allow human development and keep us from tearing the world apart.
The dominant position of China in the BRICS development bank doesn’t bode well. But if it’s not a BRICS bank, it’s got to be something.