BRICS bank can be world-changing
- By John Ross
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E-mail China.org.cn, June 15, 2015
What specifically underpins the BRICS bank's firepower is China's financial strength. There is international discussion regarding whether China should be considered the world's second-largest economy as China has argued on the basis of GDP calculated at market exchange rates, or whether it should be considered the world's largest economy as many Western economists measuring in PPPs argue. But no matter how they are measured, China's savings – the raw materials of banking – are now far higher than the savings of the U.S. As the chart below shows, in 2014 China's total savings measured at current exchange rates were almost US$5.1 trillion compared to US$3.1 trillion for the U.S.
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China's almost US$2 trillion lead in savings over the U.S. means that China is already the world's superpower in financial terms. The fact that China is prepared to work with the other BRICS countries in the NDB ensures the bank's huge potential significance.
Naturally, realizing the BRICS bank's full potential is a challenge for the diplomacy of China and the other BRICS countries. The United States' so-called "alliances" are in reality U.S. command and control structures. The U.S. maintains formal veto rights in the IMF and the World Bank and, via de facto control over Japan's economic policy, also controls the Asian Development Bank.
The BRICS countries are different. Because all key BRICS economies are large, they could, if necessary, pursue entirely independent policies. While the BRICS countries have strong mutual interests, they will not accept control by other members. This is reflected in the bank's voting structure. Instead of the IMF system, which assigns different countries different voting weights, each BRICS country has an equal vote in the NDB.
Due to their common interests, the BRICS countries are creating wider coordinating structures in the way the AIIB is not. In addition to the annual BRICS summit and the creation of the BRICS bank in June, the first BRICS parliamentary forum was held in Moscow. At this forum Zhang Dejiang, chairman of the Standing Committee of China's National People's Congress, stated, "We must strive to move toward the creation of a single market in trade and economic cooperation, the creation of a multi-level mechanism of currency agreements, new infrastructure projects and the strengthening of cooperation on the basis of the people's support. The key tools here include the BRICS Bank and the BRICS reserve currencies pool." Three out of the five BRICS countries – India, China and Russia – are also home to trade corridors proposed in China's "Belt and Road" initiatives.
Great attention was rightly given to the establishment of the AIIB. But given the BRICS bank's inclusion of economies whose absolute economic growth will exceed that of the G7, the backing provided to the bank by China's unparalleled financial power, and the policy coordination and development mechanisms the bank is engendering, the NDB will go beyond the AIIB to become a key part of a process that can change the world.
The writer is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/johnross.htm
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