The Union Cabinet, on Wednesday, cleared the establishment of the New Development Bank for funding infrastructure and development projects in the BRICS countries.
It also cleared the BRICS Contingent Reserve Arrangement (CRA) which is meant to provide short-term liquidity support to the members in case of a Balance of Payments Crisis.
“The New Development Bank will mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement existing efforts of multilateral and regional financial institutions for global growth and development,” the official press release stated.
The $100 billion New Development Bank was decided to be set up in July last year to fulfill the infrastructure financing needs of Brazil, Russia, India, China, and South Africa. The aim is to be a viable financing option for emerging economies as it was felt that the International Monetary Fund and the World Bank had not moved with the times and had not given enough representation to the biggest developing nations
The Bank will be headquartered in Shanghai, China. Its first Presidency will be held by India. The Russian government had ratified the Bank earlier today.
“The BRICS CRA will help India and other signatory countries to forestall short-term liquidity pressures, provide mutual support and further strengthen financial stability. It would also contribute to strengthening the global financial safety net and complement existing international arrangements (from IMF) as an additional line of defence,” the press release stated. It did not mention the size of the CRA.
The release stated that the Bank will begin operations only after all member countries deposit their instruments of ratification with Brazil. Central Banks of the member countries will also have to finalize an Inter-Central Bank Agreement containing the operational details of swap transactions and the Standing Committee's Operational Procedures (SCOP) before the arrangement can be operational.