The National Treasury has described the newly established BRICS New Development Bank and the Contingent Reserve Arrangement as a significant milestone for developing countries.

President Jacob Zuma has even hailed the establishment of the bank “an everlasting legacy that will change the face of global economics and the face of all the developing world for the better.”

The bank will be headquartered in Shanghai, China, with South Africa hosting the first regional centre of the bank. “South Africa welcomes the establishment of the bank and is excited about the economic potential that this institution will bring to the continent,” the National Treasury said in a statement.

The New Development Bank will mobilise resources for infrastructure investment and sustainable development projects. These include transformational infrastructure projects that allow the region to take forward its regional integration agenda.

Sub-Sahara Africa is among the fastest growing regions in the world. However, it has tremendous infrastructure and development challenges that are constraining faster economic growth, explains the National Treasury. “What is unique about this bank is that it is established by developing countries who understand development challenges and have demonstrated their ability to tackle such challenges.”

“We are very excited about this development and more so what it means for the South Africa and the continent as a whole. Expert analysts of the world agree that the past week was perhaps the most exciting in global development finance since the meetings in Bretton Woods, Massachusetts some 70 years ago,” says the Treasury.

 

Bank operations

The New Development Bank will have an authorised capital of up to $100 billion and a subscribed capital of $50 billion. All five BRICS member countries — Brazil, Russia, India, China and South Africa — will have equal shareholdings of $10 billion. While the BRICS countries will always have a majority shareholding of 55% in the bank, shareholding will soon be open to other emerging markets, developing countries and advanced economies.

The bank will cooperate closely with other development partners and international financial institutions. It will complement the efforts of existing international financial institutions and also be an alternative source of financing for global development challenges.

 

Contingent Reserve Arrangement

The BRICS also signed a treaty establishing a Contingent Reserve Arrangement (CRA), which is a “framework for a pluri-lateral financial safety net.” The aim of the CRA is to complement the existing system of financial safeguards, for example, to address short term balance of payments challenges that member countries may face.

The CRA is a virtual pool of BRICS member countries’ foreign reserves totalling $100 billion. China will avail $41 billion, Brazil, Russia and India will each give 18 billion and South Africa $5 billion. The agreement allows China to seek assistance up to the limit of $20 billion, Brazil, Russia and India $18 billion and South Africa $10 billion. Should the need arise the funds will be made available from the reserves.