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21.02.24 14:17
Economics

BRICS Banks and the New Development Bank: History of Establishment and Mechanism of Operation

In 2014, the BRICS leaders signed an agreement on the establishment of the New Development Bank


The BRICS Development Bank is a multilateral development bank that was founded by the BRICS countries in 2013.

"One of the motivations for the creation of the BRICS bank was the "underrepresentation" of the countries of the association in the voting system of international financial institutions. The organisation believes that their membership in the management of international financial institutions does not correspond to their role in the global economy," Alexandra Morozkina, PhD, head of the structural reform direction of the Economic Expert Group, associate professor of the Department of World Economy at the National Research University Higher School of Economics, told TV BRICS.

The expert noted that the topic of reforming the system of global governance was raised at all summits of the organisation, starting from the first meeting in the UN General Assembly in 2006. Almost every declaration noted the need to increase the role of developing countries in international financial institutions.

The new BRICS Development Bank

In 2014, in the city of Fortaleza, BRICS leaders signed an agreement to create the New Development Bank.

The organisation began supporting both public and private programmes. The NDB issues loans and guarantees, participates in equity and uses other instruments of financial support, according to the New Development Bank's website.

"The NDB is needed to finance various projects in the BRICS countries in the field of sustainable development, infrastructure and even digitalisation, although this is not a priority of the bank's activities, but it is very important for all BRICS countries," Alexandra Morozkina explained.

What makes the NDB special is that it can facilitate the development of local currency bond markets. This is important for all BRICS countries. At the moment, issues in roubles and rands have been registered.

"The possibility of providing loans not in international currencies but in the currency of the borrowing country removes the currency risk from it. On the one hand, it gives increased liquidity to the bond markets, on the other hand, it reduces the currency risk for the borrower," Morozkina explained.

The NBR gives loans for various infrastructure projects. For example, it can be the creation of systems of smart cities, the development of road networks and so on. The expert added that the NDB works according to the scheme of other international development banks. The project is approved – money is allocated, and the funds are borrowed on international capital markets.

The NDB builds a robust and diversified portfolio of sustainable infrastructure projects to fulfil its mandate and strategic objectives. The Bank is mentioned in the 2025 BRICS Partnership Strategies in the context of financial market development, joint energy projects. It is active and expanding. For example, the NDB promptly responded to the covid crisis by providing US$1 billion each to BRICS members to overcome the coronary crisis.

The NDB is headquartered in Shanghai. The Bank was established in 2014, with a branch in South Africa in 2017, a branch in Brazil in 2018 and a branch in Russia in 2020.

Photo: IStock
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