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NUMERO 20 - 29/10/2014

stato » dottrina - di Helmut Reisen

 Will the BRICS Bank Help Reform the Global Financial Architecture?

The new BRICS bank, officially called the New Development Bank, has been launched at the sixth summit of the BRICS countries, held in Brazil in July 2014. Can this new institution influence the balance of power among the multilateral development banks, breaking the dominance of the industrialized western countries, which has been unchallenged since the Second World War, and turning it in favour of the large emerging economies? This paper reflects on the normative power that could be unleashed in changing global financial governance by the creation of the BRICS Bank. What will be the prospects for hastened changes in the global governance structure? Will it be rebalanced away from advanced-country dependence toward the BRICS? The answer comes in three steps:
•      First, the starting point is the current imbalance of emerging powers´ capital shares and voting rights in the existing multilateral banking system; the more imbalanced it is, the higher the pressure to rebalance toward fairer representation. It will be shown that the scope and pace of governance reforms have been dismal in the established international financial institutions (IFIs).
•    Second, the extent of excess demand (financing gap) for multilateral soft loans will define the demand for concessional flows from the new BRICS bank; joint with relative lending capacity, this will guide how much business – hence political influence- the existing Bretton-Woods institutions and Western-led regional development banks might lose in favor of the new competitor bank.
•          Third, how much time it will take for a new BRICS Bank to generate the reputation (knowledge and ´certification value´) that the existing IFIs have acquired already. To obtain leverage on paid-in capital, the level of refinancing cost will be crucial for the BRICS Bank. The literature on sovereign rating determinants can provide insights about the rating the new bank will obtain from the leading rating agencies. The paper discusses the three issues one by one... (segue)



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