In continuing with recent dollar-less energy deals, currency swaps and foreign direct investment within the BRICS countries, the New Development Bank (NDB) will make its first round of loans in national currencies, cutting out the dollar.
“We will do our first loans in local currencies. Local currencies like the RMB and the Rupee,” the first President of the NDB, Kundapur Vaman Kamath told an Indian daily on Monday.
Although the NDB rival and US-Japan-led Asian Development Bank also has a local currency loan product, the new lender’s decision to snub the dollar is expected to have a wider impact.
Additionally, the paid-in-capital, or reserves at the BRICS Bank are denominated in each country’s currency.
This would aid China’s attempts to diminish the dollar’s dominance in global trade and finance. China is also pushing for the International Monetary Fund to endorse the Chinese yuan as a global reserve currency alongside the dollar and euro.
Meanwhile, NDB President Kamath told the Indian daily in Shanghai, that China’s yuan devaluation would not impact the lender’s work in any way.
China devalued the yuan last month, as policy makers stepped up efforts to support exporters and boost the role of market pricing in Asia’s largest economy.
“I do not think it will have any impact on what we (NDB) do. Suffice to say that all that happened was 1.9% devaluation. Or 1.9% market adjustment of the exchange rate. Slight movements in exchange rates in developing countries, what impact it could have across the world?” said Kamath, who has been nominated by India to head the bank.
The new BRICS lender will focus on “borrowers’ requirement and have dialogue with them”, said Kamath adding that while existing global development banks “take two, two-and-half years for appraisal and lending. We want to aim at a six month-schedule”.
The BRICS New Development Bank will name its first investment in April next year and the first loan will be issued in yuan.
The NDB will compete with institutions where the US has considerably more influence—organizations such as the World Bank and the International Monetary Fund.
The NDB launched by the BRICS has an initial authorized capital of $100 billion.
Its initial subscribed capital of $50 billion will be equally shared among the founding members.
As agreed by the five countries, the first chair of the board of governors has been nominated by Russia, the first chair of the board of directors by Brazil, and the first president by India.
An African regional center of the bank will be based in Johannesburg, South Africa.
BRICS leaders Vladimir Putin, Xi Jinping, Jacob Zuma, Narendra Modi and Dilma Rousseff met earlier in July in the Russian city of Ufa for the 7th BRICS Summit.
The BRICS central bank governors in Ufa also signed an operating agreement on the $100 billion BRICS monetary fund that came into force on 30 July.
TBP and Agencies