Lets separate the facts from opinions.
overview of Facts:
- India is under economic stress due to current account deficit and reduced growth rate.
- The BRICS are considering two common financial institutions 1) a common forex reserve pool 2) a joint development bank
BRICS bank facts:
- the motive behind these was indicated as a bank that is more like a counter to the IMF and world bank where the voting rights of the BRICS nations is not as much as it would be in their own banks. Given the lesser number of participants, there will be lesser number of people to please to get loans. (loans are NOT assistances. IMF provides loans with strings and requires payments . the BRICS bank will probably do the same with lesser strings attached).
- the primary concern here is to make the BRICS more stronger and give it more teeth in terms of global position. The EU with its financial might can tilt a few other nations' course and hence win over the nation for their own interests.
- another example is while competing for money for any interests that are common to the BRICS but detrimental to the other powers (EU/USA/Arab bloc) the BRICS bank will give a leverage or a cushion that will ensure those projects can have access to funds unreachable by the opposing powers.
(sources for the above:
1.
Can the BRICS Have Their Own World Bank? - Businessweek
)
Facts about India's position:
- India is under significant economic pressure and a looming CAD
- India's suggestion of a common BRICS bank and trading in respective currencies is aimed towards reducing its CAD and saving its forex reserves vis-a-vis the dollar. however, this does not come at an expense to the other BRICS economies. it will in fact help everyone stregthen against the dollar and make a case for China to further make the dollar's reduced relevance in the emerging new world.
Here are some economic Facts that would be possible from a common fund:
First, it will help the BRICS economies to diversify their foreign reserve exposure away from the dollar. In the aftermath of the global financial crisis, the stability of the US is being threatened as evidenced by the increased risk of a downgrade or default of US government debt, thereby threatening the role of the dollar as a global reserve currency.
In the event of a US debt downgrade or default, BRICS economies would suffer significant losses due to their exposure to the dollar. Furthermore, policies adopted by the US such as quantitative easing could lead to future inflation, thereby eroding the value of the dollar reserves maintained by the BRICS economies.
Second, the use of local BRICS currencies could facilitate the development of these currencies as global reserve currencies. As the BRICS economies share of global trade continues to increase, its currencies could be used more in international trade, thereby adding to the pool of currencies that could act as global reserve currencies.
Third, the use of BRICS currencies in cross-border trade will help reduce transaction costs and exchange rate variability, thereby promoting greater intra-BRICS trade, which will result in more sustainable growth.
Fourth, greater use of local currencies in intra-BRICS trade will help increase the influence of the BRICS economies in a multi-polar world and give it influence in multilateral bodies such as the IMF, World Bank and WTO.
Fifth, the use of local currencies in intra-BRICS trade could be a precursor to the formation of a BRICS monetary union.
Opinion:
- based on the facts, you can see that the common bank proposal (in itself) is a pretty good idea.
- the conditions for setting up the bank, and running the bank will be based on consensus and hence it wont be "pulling up one person at the expense of the others" it is rather about standing united and getting stronger.
Further opinion:
The BRICS economies could (1) select a particular currency of one of its members to use as the vehicle for intra-BRICS trade, (2) use the local currency of the exporting or importing country in bilateral trade, and (3) consider setting up a BRICS common currency to settle intra-BRICS bilateral trades.
The first approach would involve the BRICS economies agreeing to use the currency of one of its members in all forms of BRICS-to-BRICS trades. They could agree to use the Brazilian real, the Chinese renminbi, the Indian rupee, or the Russian rouble as the currency for intra-BRICS bilateral trade.
For instance, if they all agree to use the rupee for bilateral trade, then even if trade takes place between Brazil and Russia, the currency used would be the rupee. This approach could result in the emergence of the selected local currency as a potential global reserve currency to rival the dollar.
Based on present trends, the renminbi would appear to be the most likely currency to be used under this approach, as China is a creditor country with large current account surpluses, a small budget deficit, remarkable growth and a low public debt as a share of GDP.
Obtaining the agreement of all members of the BRICS countries to select a vehicle currency could, however, prove challenging.
The second approach would involve the exporter invoicing the importer using the currency of either the exporting or importing country. This approach would be similar to the bilateral arrangement made between China and Russia in November 2010.
The BRICS economies would need to agree whether to transact bilateral trades in the currency of the exporting or importing country.
The third approach would involve setting up a currency union, eventually leading to the formation of a BRICS common currency.
This would perhaps be the most difficult approach to adopt, but could have the biggest impact as it would harness the combined strengths of all BRICS economies.
before I cold write such a researched post, the thread has been run over with troll posts.
to the OP: India is under economic stress but so did most of the world a few years back and they are all temporary.
to the other troll: where is the need for taiwan here? I wish the admins were less burdened with posts like these that destroy a wonderful opportunity to discuss emerging new trends.
If only Bharti forums also allowed that kind of freedom :/
