Is the BRICS Bank a Rival to the IMF and the World Bank?

BRICS, an acronym that keeps popping up in public debate. The BRICS is first and foremost an organization created by several countries with the aim of accelerating the transition to a multipolar world. A world that opposes the international structure that has prevailed for decades. A world that rejects the use of unilateral economic sanctions. A world that rejects the domination of Western financial institutions. A world, finally, that wants to put an end to the law of the strongest, but on one side only. That said, once the slogans have been proclaimed, this transition requires not only time, but also appropriate structures. And for several years now, the BRICS countries have been seeking to accelerate this change. In financial matters, they are seeking to de-dollarize their economies, promote other national currencies, create a new financial messaging system similar to SWIFT, and last but not least, become the world's new creditors. On this last point, the New Development Bank, or BRICS Bank, aspires to become a rival to the IMF and World Bank. But does it have the means?

The influence of the BRICS continues to grow. Their circle is no longer limited to five members, but has recently expanded to ten, echoing OPEC+ with this new appellation: BRICS+. Brazil, Russia, India, China and South Africa are joined by new regional powers such as Iran, Saudi Arabia and the United Arab Emirates, as well as strategically important member countries such as Egypt and Ethiopia, both of which are fighting a never-ending water war. With this enlargement, their weight on the international stage has become crucial. Together, these nations account for almost 30% of world GDP, 40% of oil production, 25% of global exports, and almost half the world's population - over 3.5 billion souls.

The New Development Bank: visions and ambitions

Since its creation in 2016, the New Development Bank has embodied the financial institution of this organization. Initially created to finance infrastructure projects in developing countries, it is fully in line with Chinese ideology, centered on the vision of the long term, with the bank's headquarters established in Shanghai.

The objective is clear: the NDB (as it is called) wants to position itself as an alternative to the Western model. To do this, it avoids reproducing the mechanisms of dominant financial institutions, at the risk of leaving indelible marks of its own. In particular, it refuses to impose binding structural reforms in exchange for loans, whether these be aggressive tax reforms, financial market liberalization or even trade deregulation. The NDB has also set itself several objectives: firstly, it is focusing on financing renewable energies, with a target of 60% of loans going to this sector (reduced to 40% in the 2022-2026 strategy). When you consider that the overwhelming majority of the materials needed for these energies come from its member countries, this choice is all the more strategic given that Western countries are seeking to accelerate the transition to a carbon-free global economy, while still being the historical polluters (the BRICS+ are, however, today contributors to half the world's greenhouse gas emissions). Moreover, as part of their shared commitment to de-dollarization, NDB member countries are seeking to accelerate the use of local currencies. While almost 22% of the bank's financing is currently in local currencies, the bank's stated objective is to reach 30% of projects by 2026. At the same time, the NDB aims to reduce the use of dollars in its lending to 70% by 2030, and to eliminate them as far as possible from future financing. This will not only protect its debtors from fluctuations in the US currency, which, as we all know, is constantly changing, but also to strengthen certain national markets that are still underdeveloped. This de-dollarization of loans would reinforce the current trend, as 65% of all trade between member countries is now settled in local currencies.

Its development is also rapid, as the bank has grown from just $1 billion in loans in 2017 to over $20 billion today. This development is all the more important as it can finance itself at competitive rates thanks to credit ratings that are, on the whole, excellent, whether the AAA from Chinese agencies or the AA+ received by Western agencies Fitch and Standard & Poor's in 2018. However, despite its stated ambitions, NDB's resources remain limited. With an initial capital of $50 billion (planned to reach $100 billion), it remains well below the IMF, whose resources exceed $1 trillion. How can they expect to compete? 

After all, its objective is not only financial, but also profoundly geopolitical (financial means being merely the materialization of a certain order). In addition to these five founding members, it now includes Bangladesh, the United Arab Emirates, Egypt and Algeria, while Uruguay is in the process of joining. These nations are working together not only through this integration, but also through their economic interests, by strengthening their ties with numerous developing and emerging countries. In addition, the bank is expanding its international presence by opening offices in Africa, America (Brazil), Eurasia (Russia) and South Asia (Gujarat, India). And it continues to finance projects in many countries. From the recent R5 billion loan to South Africa to repair its freight rail operations, to the $700 million financing of two different projects in Bangladesh, including one to upgrade the existing gas network in Dhaka and Narayanganj. One project follows another, and in all the countries concerned, the focus is on long-term development.

Governance, a central pillar of the institution

A coherent structure also comes from influential leadership. In this respect, new CEO Dilma Rousseff is seeking to transform the bank in depth. Whereas in the past, management was often criticized for the slow execution of stated projects, the situation seems to be changing with this new mandate. Dilma Rousseff, a Brazilian economist and political activist, is also President Lula's former chief of staff. She follows the same political line as her former collaborator, who, it should be remembered, declared that “Every night I ask myself why all countries have to base their trade on the dollar.” By seeking to expand membership of the NDB to new countries, the new president aims to accelerate the transition to a de-dollarized world and truly compete with the dominant American institutions. Since taking over the presidency of the bank in the spring of 2023, she has also displayed other strategic ambitions, including support for the development of African countries, whose potential is unrivalled. She also wants to increase cooperation with other institutions, notably development banks such as the Development Bank of Latin America (CAF) and the Asian Development Bank (ADB), in order to increase its influence. Multiple projects which will be taken over by the Russian presidency from 2025 onwards. This change in governance will mark a turning point, all the more important as Russia, sidelined from the Western financial system, is keen to accelerate the institutional development of the BRICS, having proposed the creation of a multi-currency system including trading centers for commodities such as oil and gas and gold.

To remain consistent with its political line, the New Development Bank also has a singular mode of governance. The presidency of the NDB rotates between countries on a pre-established basis, for a five-year term (until then, more or less on the model of Europe's rotating presidency). Moreover, while each founding country (Brazil, Russia, India, China, South Africa) has an equal share of the capital, there is no right of veto, unlike at the IMF. Within the Western financial institution, the voting rights of each country are calculated subjectively according to their economic and geopolitical weight in the world. As the United States is considered to be in the majority, it has veto power over all votes. In fact, although the power of each country is not the same within the NDB - because the structure guarantees that the founding members retain a majority influence - this model appears all the more as a “lesser evil” since no single country can lay down the law.

The ambition of a common currency

The New Development Bank aspires to go further. For several years, it has nurtured the ambition of becoming the institution capable of bringing to fruition the bold project of a common currency for the BRICS. At the 2023 summit in South Africa, a working group was set up to study the feasibility of such a common currency. The most optimistic voices, such as that of Brazilian economist Paulo Nogueira Batista, even envisage this project coming to fruition in the coming years, with potential advances as early as the BRICS summit at the end of 2024 in Kazan, Russia, followed by the one in Brazil in 2025. But let's not confuse idealism with realism. A common currency requires a common central bank. And to date, the divergences between the economic systems of the NDB member countries remain as profound as the functioning of their central banks. China's and Russia's central banks, for example, are state-controlled, while others such as Brazil's and South Africa's are independent - just like Western central banks. The project also faces obstacles in terms of implementation, as many BRICS countries are reluctant to give up their monetary sovereignty, not least because of their individual quest for power. China, Russia and even India are good examples of this reluctance. India, moreover, is close to the Western powers, and all the more so since Modi's re-election. There is therefore little hope, despite the declarations and willingness of other countries, that India will join this project.

Contradictions also remain in its own decisions. The bank opposes Western unipolarity, but embraces US and EU sanctions against Russia by ceasing to provide loans. The bank is keen to expand rapidly, but in its nine years of existence only four new countries have joined its ranks (it also publishes very little information on the loans and financing it offers). It claims to be fundamentally opposed to the dollar, but almost 70% of its loans are still in dollars, although the proportion of loans in other currencies - such as the yuan or the South African rand - is increasing. Yet the capacity is considerable, given that member countries have large reserves built up through years of trade surpluses. China alone holds nearly $3 trillion, India over $560 billion and Brazil over $325 billion. Ultimately, using these reserves to finance the bank's projects would be a logical alternative to borrowing on the markets.

In the final analysis, the New Development Bank is still only a modest alternative to the main international financial institutions, notably the World Bank and the IMF. Its capital is meagre, its dependence on the dollar too great, its governance imperfect, its confidence still low - too many factors detract from its attractiveness. Faced with such vast ambitions, its resources are insufficient. But time may be on its side. Global balances are being reconfigured, and history seems to be proving them right. After all, revolutions are always silent.