From left, Russia’s President Vladimir Putin, India’s Prime Minister Narendra Modi, Brazil’s President Dilma Rousseff, China’s President Xi Jinping and South Africa’s President Jacob Zuma on July 15 (Photo: pmindia.gov.in)
It is commendable that the leaders of Brazil, Russia, India, China and South Africa (BRICS) managed to reach a last minute agreement on where to locate the New Development Bank to be equally capitalized by the five countries. However, what I find incongruous is that in this age of digital money where financial transactions are virtual, the five leaders should still betray the bricks and mortar mindset of the old economy. Or, as I so cleverly call it, BRICS and mortar mindset despite punning being the lowest form of humor.
Going by the media reports, there was considerable jostling among the five, particularly India and China, over where to physically situate the so-called BRICS bank’s headquarters. A Brazilian diplomat was quoted by Reuters as saying that the final agreement was sealed barely ten minutes before the summit was to conclude. That illustrates the clout each one of the five wants to exercise using the potentially powerful financial tool that the new bank might become. The barely hidden purpose of the new bank is to create a counter against what these five see as the West/America-dominated financial order, one of whose important tools has been the World Bank/International Monetary Fund (WB/IMF)combine.
The old adage that the one who pays the piper calls the tune was very much on display at the summit as well as in the run-up. China is unquestionably the first among equals here given the size and reserve of its economy. It ought to have been hard for Beijing to agree to a deal where all five have an equal say as manifest in the $10 billion apiece that they agreed to invest to capitalize the bank. The broad idea seems to be to gradually free up the global economy from the stranglehold of both the US dollar as well as the fluctuations in the American economy. These leaders are mindful of the fact that the chairman of the US Federal Reserve ends up becoming a decisive player in the global financial system where value is increasingly created outside of America. It is a smart move for these five economies to join hands to at least attempt to create a financial counterweight against the singular domination.
That said, in keeping with the need to reform the skewed order they should not have wasted time on the bricks and mortar aspect of the bank. Why could they not think in terms of creating a system that is not just a building in one place but a virtual system distributed in all five countries? Given the virtualized nature of money and finance and spread of broadband they could have easily decentralized and distributed control. I suppose it is the weakness to create physical infrastructure such as glistening modern buildings that is as much a draw here as the main mandate of the bank, namely to help cash-strapped projects in weak economies.
Now that they have agreed to locate the headquarters in one place, namely Shanghai, they could think in terms of infusing a startup spirit into the new venture. I apprehend that this could become a bureaucratic behemoth that the WB/IMF has become. The whole idea is to be lean and nimble rather than creating a new layer of highly paid financial bureaucrats. I hope the New Development Bank does not become that.