TL;DR Breakdown
- The New Development Bank (NDB) plans to increase local currency loans to 30% from the current 22% to reduce dependency on the US dollar and foreign exchange risks.
- NDB’s President announced this strategic shift toward a diversified global currency system and stressed that no single currency would likely dominate the world’s currency system in the future.
The New Development Bank (NDB), colloquially recognized as the BRICS bank, is charting a new path to reduce reliance on the US dollar by expanding its portfolio of loans in local currencies.
The Shanghai-based lender, conceived by the BRICS countries – Brazil, Russia, India, China, and South Africa – aims to navigate away from the hegemony of a single global currency and seeks a diversified currency system.
The current President of the NDB, Dilma Rousseff, emphasized the importance of such diversity, “We will increasingly see local currencies deployed to settle trade,” she declared.
This bold stance envisions a future where no single currency dominates the world’s currency system, thus encouraging economic equilibrium.
BRICS bank transitioning to local currencies
Rousseff unveiled the bank’s plan during the annual meeting, announcing an increase in local currency loans from 22% to 30%. This move is designed to mitigate foreign exchange risk, making the bank less reliant on the U.S. dollar, which currently serves as the primary medium for its financing operations.
“We need to diversify our global currency system,” said Rousseff, suggesting that a single currency is unlikely to monopolize the world’s currency system in the future.
This strategy aligns with the NDB’s mission of boosting collaboration with other multilateral and national banks, therefore extending its global reach and impact.
With a currently approved financing of $32.8 billion across 96 projects, the NDB continues to broaden its membership beyond the founding BRICS countries.
Recent additions include Bangladesh, the United Arab Emirates, and Egypt, with Uruguay on the prospective list and Saudi Arabia engaged in preliminary discussions.
During a media briefing, Anil Kishora, Vice President and Chief Risk Officer, highlighted that the transition to local currencies should be achieved within five years.
This strategic change comes at a time when geopolitical tensions are mounting, particularly following recent events in Ukraine and a complex relationship with China.
The New Development Bank’s commitment to facilitating economic stability and growth in emerging markets continues to fuel its drive towards local currency financing.
This shift signals an important departure from the prevailing dependency on the US dollar and sets the stage for more diversified and balanced global economic dynamics.
Securing the future of emerging economies
According to Chinese Vice-Premier Ding Xuexiang, despite the fragility of the global economic recovery, Beijing is resolute in its endeavor to evolve the NDB into a more inclusive multilateral bank.
The NDB remains committed to serving emerging economies, financing further infrastructure and sustainable projects.
As part of this commitment, the bank recently issued 8.5 billion yuan ($1.2 billion) worth of panda bonds on China’s interbank bond market. This move, indicative of investor confidence in the NDB, is part of the bank’s strategy to diversify its sources of funding.
“We aim to mobilize more financial resources denominated in currencies such as the Chinese yuan, the US dollar, and the euro to support infrastructure and sustainable projects in member countries,” Rousseff stated.
This innovative approach and progressive attitude position the New Development Bank as a trailblazer in the quest for a diversified global currency system.
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