The BRICS Bank seeks to reduce dependence on the dollar

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The BRICS-created development bank plans to start lending in South African and Brazilian currencies as part of a plan to reduce dependence on the dollar and promote a more multipolar international financial system, according to its president.

Dilma Rousseff, the former Brazilian president who heads the New Development Bank, said the Shanghai-based bank is examining membership applications from about 15 countries and is likely to agree to accept four or five countries. She declined to name the countries, but said that one of the priorities of the New Development Bank is to diversify its geographical representation.

“We expect to lend between $8 billion and $10 billion this year,” Rousseff told the Financial Times in an interview. “Our goal is to have about 30 percent of everything we lend . . . in local currency.”

She said the New Development Bank would issue debt in rand for lending in South Africa and would do “the same thing in Brazil with reals. We will either try to do currency swaps or issue debts. Also in rupees. The bank is already lending renminbi.”

The expansion of local currency lending supports a broader goal agreed upon by the BRICS countries, which is to encourage the use of dollar alternatives in commercial and financial transactions.

The BRICS countries – Brazil, Russia, India, China and South Africa – created the New Development Bank in 2015 as an alternative to US-dominated financial institutions such as the International Monetary Fund and the World Bank.

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The New Development Bank has lent $33 billion for infrastructure projects and sustainable development, and has included countries outside the BRICS, Egypt, Bangladesh and the United Arab Emirates as additional members, with Uruguay reaching the final stages of acceptance.

Rousseff said local currency lending would allow borrowers in member states to avoid exchange rate risks and changes in US interest rates. “Local currencies are not a substitute for the dollar,” she said. “They are alternatives to the system. So far the system has been unipolar… it will be replaced by a multipolar system.

The BRICS Bank has also tried to distinguish itself from the World Bank and the International Monetary Fund by not putting lists of political conditions on loans. “We reject any kind of conditions,” Rousseff said. “Often the loan is given on the condition that certain policies are implemented. We don’t do that. We respect the policies of every country.”

Despite its intention to offer an alternative to the existing US financial system, the New Development Bank was forced to suspend all operations in member country Russia to avoid sanctions and isolation from the international financial system. “You can’t deny that [the international financial system] Rousseff admitted. “You have to live with it.”

Fitch Ratings downgraded the NDB’s debt rating from AA+ to AA last year with a negative outlook due to the bank’s exposure to Russia, saying it “may face challenges issuing long-term bonds in the US capital markets.”

The credit rating agency said that was due to reputational risks associated with its ownership structure partly in Russia, with Moscow owning 19.4 percent of the capital at the end of 2021. Fitch revised the NDB’s outlook to stable in May after the bank succeeded in issuing government bonds. green bonds of $1.25 billion but failed to regain the AA+ rating.

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Rousseff said she believed the bank had plenty of room for growth, saying that at seven years old it was the world’s youngest development bank. “We will transform ourselves into an important bank for developing countries and emerging markets,” she said. “Our focus should be: a bank that developing countries have created for themselves.”

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