What can we expect from the New Development Bank of BRICS

The so called BRICS countries (Brazil, Russia, India, China and South Africa) this time seems to take seriously.

These countries have agreed to build a New Development and Investment International Bank. This new institution will be ready to operate within the end of this year.  Its headquarters will be in Shanghai and the potential of this institution is estimated to be 100 Bln dollars initially. The president of the bank will stay on charge for 5 years in a rotation system between the founding countries and none of the countries will have veto power.

Politically this initiative has the flavor of a challenge to the most important western institutions like World Bank and IMF. Economically it should not be considered a challenge but an opportunity for the entire world to grow faster.

In fact this institution is going to finance many infrastructure projects in these development countries. In these countries live around 3 bnl people and there is a strong lack of infrastructure. We also can expect a further drop on the long term financing rates because of the competition between these financial institutions to lend capital. In a world with a very low return rate, a further drop on long term financing rates is only good news.

The problem for this new international bank for the moment seems to be the fund. 100 Bnl is an insufficient capital for the real needs of these five development countries. Most likely it will be increased very soon.

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