After the recently concluded BRICS summit in South Africa, the focus has now shifted to the New Development Bank (NDB). The young bank, set up in 2014, by the BRICS members is not only set to increase its lending to the Global South but much of it could be undertaken in local currencies, a move that will deal a blow to the US dollar. Even as there may not be an immediate launch of a BRICS common currency, analysts said that the Shanghai based lender is bound to promote lending in local currencies.
They added that the Global South’s dependence on the NDB is likely to increase in the coming years. As BRICS has recently taken to branding itself as a counterweight to the West, its members have pushed for NDB to focus more on the use of local currencies, Market Insider said.
“We expect to have lent between $8 billion and US$10 billion this year..Our aim is to reach about 30 per cent of everything we lend in local currencies,” Dilma Rousseff who is currently heading the NDB said.
The NDB has already issued debt in South African rand for expanding lending in the African nation. It has attracted 2.67 billion rand of bids, according to news agency Reuters. The bank has also indicated that it is firming up plans for an Indian rupee bond in October.
While at present, the role of NDB in lending to countries has remained limited, the expansion of the BRICS bloc with the inclusion of Saudi Arabia, UAE, Iran, Egypt, Ethiopia and Argentina is expected to provide wings to the multilateral lender.
A report by the State Bank of India (SBI) noted that the World Bank and International Monetary Fund (IMF)– particularly the latter, tend to attach often conditions to the funding they provide. The IMF does not ask for collateral when it lends money to troubled countries; instead it prescribes economic policies that the country must follow, the report added.
Though the BRICS bank may not be able to dislodge the World Bank and IMF soon, its activities and its operations will be monitored closely.
“The question about whether the NDB will also want to have a say in a country’s policies in exchange for funding is still open and very topical, given that the clients of the bank will be poor countries, where the risk of being unable to repay the loan is inherent,” the SBI report, however, said.