BRICS Agree To Local Currency Credits To Ease Dollar Dependency
The BRICS – Brazil, Russia, India, China and South Africa – have agreed to provide credit to each other in local currencies. Officials say the deal will facilitate economic growth in times of crisis.
The currency swap deal is aimed at promoting trade and investment in local currencies as well as to cut transaction costs. It’s also seen as a step to replace the dollar as a reserve currency in trade between BRICS. Plan too put together some more bricks to make them a stronger economic power – a joint development bank and united stock index.
“The idea is in line with many interests and economic exigencies in the world economy,” Yaroslav Lissovolik, the chief economist at Deutsche Bank told RT. “The euro and dollar are no longer seen as unquestionable monopolies in the role of reserve currencies. Clearly the world needs more reserve currencies.”
The deal would also increase the BRICS influence on the international arena and will make their cooperation less sensitive to sanctions from the West, experts say.
“The BRICS countries are in the first rank to do the job that international financial system now needs. What the BRICS said was a very welcomed wake up call,” John Kirton, the Co-Director of the BRICS Reasearch Group told RT.
Russia and China have been trading in the rouble and yuan for several years, now Russia plans to expand local currency settlement with India.
“With China it took us three years to (evolve) from initial conversations to trading in local currencies,” Vladimir Dmitriev, the chairman of Russia’ s VEB told reporters. “I think we will meet similar terms with India”.
Meanwhile the swap requires a lot of technical work by each country such as the synchronization of national banking legislation, according to Mr. Dmitriev.
The BRICS countries are also going to announce plans on a joint development bank which is considered a possible rival to the World Bank and the IMF. If established, it would function as a lending agency and would provide finance for joint BRICS projects.
“They made it very clear it would be built to benefit not only BRICS countries themselves, but developing countries more broadly,” said KIrton. “But the big message was to give the World Bank more resources, only then would they see how the BRICS bank would fit in the supplement what they’ve already got.”
The plan of establishing the bank is expected to be announced during the BRICS summit in New Delhi, which brings together the leaders and top financial figures of the countries. If implemented this would be the first joint financial enterprise by the five countries, which account for 45 percent of the world’s population and a quarter of its economy at $13 trillion.
Since the term BRICS was invented in 2001 by Goldman Sachs economist Jim O’Neill the block was often criticized for having nothing in common whether in economic or in political systems.
Experts say, the BRICS bank would become a rival for existing international financial behemoths such as the IMF and World Bank and push them to reforms in order to become more fit for current challenges.
“The IMF and the World Bank their influence reduced significantly over the past decade,” agrees Xiang Songzuo from Bank of China.“Particularly the previous financial crisis and current financial crisis made me believe they had not played the salvation role in preventing the crisis.“
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