BRICS Development Bank Could Break Dollar Hegemony

Source: BDL
South Africa’s chances of playing a significant role in the mooted Brics bank now depend on President Jacob Zuma’s negotiation skills.
International Relations Minister Maite Nkoana-Mashabane says that while the country will not say no to a chance to host the bank, it was now up to negotiations at the level of president among Brics member countries (Brazil, Russia, India, China and SA).
South Africa will host the fifth Brics summit in Durban from March 26-27 as it looks to stake its claim on this body of emerging economies, which aspires to be an alternative economics and politics club.
While South Africa is the smallest of the Brics economies, it has set its sights on hosting the bloc’s planned development bank. Pretoria diplomats feel that the country’s distinguished financial services sector — hailed in 2008 for its sophistication at a time when US and UK banks were at the centre of a global financial crisis — stood South Africa in good stead.
However, as a “junior” partner to countries like China, it maybe wishful thinking to expect its financial services glamour to guarantee it host status.
Pretoria, with backing from the African National Congress, has been lobbying for the right to have the bank based in South Africa.
The option of having the bank co-hosted in two countries has also been considered, as technocrats and diplomats in these countries trash out preliminary issues ahead of the Durban summit, where the development bank will be launched.
Diplomats and leaders from the Bricks countries are also thrashing out details on the proposed currency swap mechanism — a potentially game-changing idea that could take on the dollar, euro and other currencies.
Brics countries are looking at ways to establish a foreign-exchange reserve pool, along with a currency-swap arrangement, meant to insulate these emerging economies against the economic woes faced by developed economies.
Ms Nkoana-Mashabane says she envisages a conclusion of the discussion on the currency swap to happen in Durban. The idea behind a currency swap was meant to keep trade among the Brics countries within the confines of this league’s currencies, so that “you don’t have to go through other countries that are not involved in the transaction”.
Intra-Brics trade is more than $300bn and is expected to reach the $500b n mark by 2015.
Together with the proposed development bank, intra-Brics trade and currency pooling are some of the key issues ahead of the Durban summit. It is hoped the bank, with a $50bn starting capital, would rival the World Bank and International Monetary Fund, which are dominated by established economies.
Brics countries will pool resources to fund development projects within their countries but these would not exclude other states. The bank would also fund projects in developing countries that are outside the Brics league.
Pretoria diplomats are determined in their campaign to host the bank. “Of course hosting it will be good,” says Ms Nkoana-Mashabane. “But not just good because it’s good to host an institution, (but) because SA has something to offer. We … have the capacity to run the best financial services in the world. We are a very sound, dependable democracy, with an independent foreign policy,” she says.
It would also be wise for South Africa to be ready to settle for nominating a citizen to run the bank, in the event that Brics presidents don’t agree on South Africa hosting it.
South Africa is gearing up to be the chair country for the whole year after the summit. That will put Pretoria in the driving seat in the implementation of the Durban declaration, the minister says.