Illustration: Liu Rui/GT

Five years have passed since four heads of government from the BRIC countries convened in Yekaterinburg for the first summit. Soon after that meeting, many Western scholars openly expressed their pessimistic views toward the BRIC group, claiming that it wouldn't prevail due to large divergences among its member countries.

As the growth of new emerging economies has slowed down, a myriad of Western scholars and media outlets made gloomy predictions of the BRICS, while at the same time, strategists such as Zbigniew Brzezinski and Joseph Nye have kept a close eye on whether the BRICS countries could make an advance in such issues as setting up a BRICS-led development bank. 

BRICS, in fact, has consolidated its status and clout as an international political and economic group. It is unleashing attractiveness to other new emerging economies which have been disposed toward joining the group.

The ongoing Fortaleza summit is a launch pad for two financial institutions: the New Development Bank (NDB) and the Contigent Reserve Arrangement (CRA). This will signify a substantial institutional step forward.

The goal of the NDB is to provide low-interest loans to the vast number of developing countries, including the BRICS economies, assisting them in infrastructure construction.

The bank, which will have an initial subscribed capital of $50 billion from the five member countries, will finally be built up to $100 billion in capital. Participation in the NDB will be on the basis of equal shares: $10 billion each and equal voting rights for each member.

Although the admission of new shareholders in the bank's capital is open, the BRICS will always retain a controlling stake of no less than 55 percent. All major decisions at the NDB are to be made through a majority or two-thirds vote.

The CRA, which will also be built up to $100 billion, is aimed at dealing with all emergencies during the time of a financial crisis.

China will be the largest donor to this reserve fund, bringing in $41 billion, followed by $18 billion each from Brazil, India and Russia and $5 billion from South Africa.

The establishment of the NDB and the CRA has been viewed as a counterweight to the Western-dominated financial organizations, namely the World Bank and the International Monetary Fund (IMF). Such a point of view is based on the doctrine of Western superiority.

The outbreak of the 2008 financial crisis illuminates the flaw of the prevailing international financial system and the necessity to reform. Since the US dollar's dominant position in global reserves is very robust, the developing nations, including new emerging powers, suffered the strongest impact during the crisis, no matter when Washington implemented or withdrew the policy of quantitative easing.

Given the fact that international financial reforms are hard to advance, the BRICS countries have to blaze a new trail to reduce losses as well as safeguard interests.

The NDB and the CRA in actuality supplement the existing global financial system.

Loans from the World Bank are not able to meet the demands of the developing nations, and the funding on infrastructure which is direly needed by developing countries only takes a small slice of the Word Bank. The IMF also failed to play an active role in stabilizing the turbulent emerging financial markets during the global financial crisis.

With a different shareholding structure and operation model from the World Bank and the IMF, the BRICS-led development bank and the reserve fund better embody democracy, which will attract more countries to join in, thus injecting an element of healthy competition among financial institutions.

Consequently, competition could stimulate the World Bank and the IMF to promote reforms on shareholding and operation.

Western countries have been asking new emerging countries, including China, to take more international responsibilities. The biggest problem facing the international community is development.

New emerging economies, the BRICS countries in particular, are actually meeting Western demands by establishing the NDB and the CRA to finance development of developing nations and stabilize the global financial market.

The author is a research fellow of Shanghai Institutes for International Studies. opinion@globaltimes.com.cn