Emerging Economies Launch Development Bank

Last month’s summit meeting of leaders from the BRICS in Brazil yielded a surprise for many U.S. supply chain managers evaluating emerging nations: The rise of a the “New Development Bank” (NDB) intended to compete with the World Bank and its private lending arm, the International Finance Corporation (IFC).

This new international development bank and multi-billion emergency lending pool will be setup by Brazil, Russia, India, China, and South Africa, and may make it easier and quicker for developing countries to gain access to large-scale financing for infrastructure projects.

The BRICS will also set up a $100 billion joint U.S. dollar currency reserve pool, called the Contingent Reserve Arrangement (CRA), in order to provide emergency cash to BRICS countries faced with short-term currency crises or balance-of-payments problems.

The CRA’s mission parallels that of the International Monetary Fund. It will provide emergency funds to governments faced with a sudden shortage of hard currency—especially of U.S. dollars, the dominant currency in global trade and finance.

Developing-country financial crises can occur when international investors suddenly pull large amounts of hard currency out of a country because of concerns over its banking system’s solvency, a change in interest rates, or some other financial factor.

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