The leaders from the BRICS countries (Brazil, Russia, India, China and South Africa) have approved a fund worth $100 billion for combatting the currency crises. However, they have failed to come to an agreement over the financing details for a development bank. According to the Finance Minister of Russia, Anton Siluanov, China may provide the most of the funding for the foreign currency pool. According to him, China may contribute up to $41 billion, whereas, each of Russia, Brazil and India may contribute around $18 billion. South Africa is expected to contribute $5 billion, as stated by Anton.
After the leaders of the five nations completed their meeting in Durban, the President of South Africa, Jacob Zuma stated that this establishment of a self-managed contingent reserve arrangement is expected to work positively and may have a precautionary effect as well, thereby helping the BRICS countries to forestall short term liquidity pressures. Apart from that, this reserve management is expected to provide mutual support and held these countries to strengthen their respective financial stability.
Incidentally, BRICS countries, combined have 43% of the total world’s population and the combined foreign currency reserve is of $4.4 trillion. These countries are now looking forward to better financial sway for matching with their increasing economic power.
Several emerging markets such as Brazil, Turkey etc. have been hit hard by the currency swings off late. The interest rate in developed countries such as US, Japan and many of the Euro region countries are near to zero at this point of time and this has boosted the appetite of the foreign investors’ for the higher yielding assets. Real, the major currency of Brazil has increased by 1.9% against USD in 2013. For Rand, the South African major currency, the result has been a decline of 8.8%.
So far, no details have been divulged regarding the operation mode of this currency fund. Guido Mantega, the Finance Minister of Brazil, in last October, stated that this pool will be modeled on the Chiang Mai Initiative. Incidentally, Chiang Mai Initiative provides access to several South-East Asian countries, apart from China, Japan & South Korea to the emergency liquidity worth $240 billon. This helps these countries shield away from the global financial shocks. When it comes to the development bank, the whereabouts are still being looked after by the leaders of the BRICS countries.