BRICS to set up reserve fund
Leaders from the BRICS countries have agreed to establish a foreign reserves pool and a development bank in a bid to deepen cooperation within the group of emerging economies, South African President Jacob Zuma announced Wednesday.
The announcement was made at the BRICS summit in the South African port city of Durban.
Dow Jones quoted an anonymous official familiar with the negotiations as saying that the size of the contingency fund would be $100 billion, in which China would contribute a $41 billion share, followed by Brazil, Russia and India with $18 billion each, and South Africa with $5 billion.
According to the report, each country's central bank is supposed to keep the fund's reserves as part of its own reserves. It could take a year or so for each nation to regulate the fund, and a final agreement could be signed when the BRICS regroup next year in Brazil.
Yu Qiao, a professor of finance with the School of Public Policy and Management at Tsinghua University, told the Global Times Wednesday that the size of the fund is adequate to fend off risks of volatility in exchange rates in the five countries.
"The management model of the fund indicates it is more of a gesture instead of an entity like the IMF and the European Financial Stabilization Mechanism," said Yu, adding that the fund will be a complementary measure in fending off risks.
According to the Xinhua News Agency, Zuma told a plenary session of the summit that the leaders have decided to enter formal negotiations to establish a BRICS-led development bank and they require $4.5 trillion over the next five years to finance infrastructure projects.
The bank will also be used to cooperate with other emerging markets and other developing nations.
However, the five countries did not discuss initial investments each country would make to the bank, China's finance minister Lou Jiwei Tuesday told Xinhua, adding they will see whether the final results will be settled next year.
Experts noted that the bank would serve as a necessary mechanism for intra-BRICS cooperation.
"The BRICS nations are like scattered pearls that haven't been put on a string," Zhao Jinping, a senior researcher with the Development Research Center of the State Council, told Xinhua.
According to Yu, it would help Brazil and South Africa to improve their outdated infrastructure and Russia also needs funds to develop its Far East region.
He also believes it would provide a great opportunity for China to optimize the structure of its huge foreign reserves by diversifying its investment from US or European bonds.
China now holds more than $3.31 trillion in foreign reserves.
"By purchasing bonds and shares in the bank, the foreign reserves could be invested into the real economy through the funding of infrastructure construction and the development of resources in emerging countries," Yu said.
Besides agreements on the development bank and the contingency fund, BRICS also launched a business council to drive private sector investment among them and a think tank council to assist with innovations.
The BRICS Business Council's objectives include the strengthening of trade relations, promotion of business relations, technology transfer, and cooperation in the areas of technology development, banking, the green economy, manufacturing and industrialization.
Addressing the summit, Chinese President Xi Jinping outlined China's viewpoints on BRICS-African cooperation.
He has hailed the significance of holding the BRICS summit for the first time on the African continent along with the first BRICS Leaders-Africa Dialogue Forum.
Chris Alden, head of the Global Powers and Africa Program at the South African Institute of International Affairs, Wednesday told the Global Times via email that the African involvement is important in that promoting African development on the continent is a key foreign policy aim of the South African government, the host of the summit.
"[It's] an important rationale for [South Africa's] promotion of the idea of a BRICS development bank," said Alden.
Agencies contributed to this story