Can the BRICS Bank Break Out?
Aug. 10, 2023, 2022 (EIRNS)—South Africa’s Finance Minister Enoch Godongwana, in an interview with Reuters last week published today, said that the BRICS Johannesburg summit will discuss the fact that the BRICS needs to increase “fundraising and lending in local currencies” for the New Development Bank (NDB). “It is not doing as much as member countries require, but that is the strategic direction we are pushing the bank in,” Godongwana said. The Reuters article oddly uses the phrase “local currency fundraising” to mean seeking new capital contributions for the NDB from all eight current members in their own currencies, and also seeking new NDB member nations such as Saudi Arabia, Algeria and Uruguay. The NDB is planning to issue $80 million in rand-denominated bonds in South Africa on Aug. 15, and to issue rupee-denominated bonds in India before the end of this year. Should Saudi Arabia and Algeria join, the equivalent of $4 billion or more could be raised in new capital from those two nations.
As EIR has reported in past weeks, the existing member nations and these new members, issuing bonds to the bank backed by their own gold reserves, could greatly expand the NDB’s ability to fund development projects, and could overcome the strong fluctuations in member nations’ currencies which have kept the bank’s capital low—and its borrowed capital exclusively in dollars and euros—up to now. (The Reuters authors slyly point out that the Federal Reserve’s rapid-fire interest rate hikes have lowered the exchange values of the NDB’s member nations currencies, without adding that that has been intentional U.S. policy.)
The New Development Bank has been under sanctions since the “Ukraine” war began, meaning that it could no longer operate under its Wall Street-like “business model” used up to that time. Russia being a 20% shareholder in the bank, developed nations’ purchases of NDB bonds stopped, and Fitch Ratings Service added a downgrade of the bank’s credit rating just to make sure. Under its previous, Wall Street-oriented president, the NDB tried hard to please, ending project lending to Russia and freezing existing Russian credit. But dollar and euro purchases of the bank’s bonds remained non-existent, and they had accounted for 90% of the NDB’s total lending of $33 billion since its inception. Only by issuing “panda bonds” in yuan in China’s bond market did the NDB finally succeed in raising $1.5 billion in June 2023.
“Not what member countries require,” as Mr. Godongwana said.
International Banker explained these sanctions in more detail in a July 31 article, significantly headlined, “Why Saudi Arabia’s Imminent Membership Is Crucial for the BRICS’ New Development Bank.”
By recruiting new members able to make sovereign contributions to the NDB’s capital, using their own gold-backed bonds, and the eight existing NDB member-nations doing the same, allowing the bank to borrow a multiple of the new capital contributions by issuing bonds denominated in national currencies, the NDB can break out of the sanctions of the NATO countries and the grip of the City of London and Wall Street. Under its new President Dilma Rousseff, it can become the central credit institution for development of “global South” nations.