BRICS Bank Okays 30% of $10b Loan in Local Currency

The New Development Bank (NDB) – BRICS Development Bank will be lending $10 billion this year, its President Dilma Rousseff has hinted.

Thirty per cent of such facility will be made available to beneficiaries in local currencies of the borrowing countries, Rousseff, who spoke in an interview with Financial Times, explained.

The multilateral development bank was established in 2015 by the BRICS nations (Brazil, Russia, India, China and South Africa).

She hinted of plans to begin lending in South African and Brazilian currencies in order to reduce reliance on the United States (U.S.) dollar.

According to her, lending in local currency would allow borrowers in member countries to avoid exchange rate risk and variations in U.S. interest rates.

She, however, clarified that the local currencies are not alternatives to the dollar.

Although Nigeria is not a member of the BRICS club, but Vice President, Kashim Shettima is attending the BRICS 15th summit which kicked-off Tuesday in Johannesburg.

Brazilian president supports more countries in BRICS

On the agenda for discussion are: an expansion of the bloc; greater use of local currencies and the possibility of a BRICS currency which may have the potential to challenge the dominance of the U.S. dollar.

Already, there has been a drop in the dollar’s share of central banks’ foreign reserves, but dollar usage has held up very well in commerce, private assets, debt issuance, and generally on the global forex market.

Rousseff said the Shanghai-based lender was considering applications for membership from about 15 countries and was likely to approve the admission of four or five.

She declined to name the countries but said it was a priority for the NDB to diversify its geographic representation.

“We expect to lend between $8 billion-$10 billion this year,” Rousseff said.

Continuing, she said the bank’s aim is to lend about 30 per cent of the fund in local currency.

She said the NDB would issue debt in Rand for lending in South Africa and do “the same thing in Brazil with the real. We’re going to try to either do a currency swap or issue debt. And also in rupees.”

Rousseff said the bank has also tried to distinguish itself from the World Bank and the International Monetary Fund (IMF) by not setting lists of political conditions on loans.

“We repudiate any kind of conditionality,” Rousseff said.

Often a loan is given upon the condition that certain policies are carried out. We don’t do that. We respect the policies of each country,” she said.

Analysts said that despite talk of an enlarged BRICS alliance and the possibility of a new currency which could challenge the dominance of the dollar, the greenback is not in any immediate danger of losing its status as the primary global currency.