BRICS to spend $100 bn on reserve fund

The five central banks of the BRICS states are working on a mechanism for contributing to the fund and for coordinating with IMF policies. Source: AP

The five central banks of the BRICS states are working on a mechanism for contributing to the fund and for coordinating with IMF policies. Source: AP

The major emerging economies are concerned about the US Federal Reserve’s plans to start tapering its liquidity injection programme.

Leaders of the BRICS countries (Brazil, Russia, India, China and South Africa) are close to reaching a consensus on creating a $100 billion reserve fund, Chinese Deputy Minister of Finance Zhu Guangyao said.

Brazil proposed the fund back in 2012 for the BRICS countries to be able to support one another if their capital accounts deteriorated. Finance ministers of the five nations signed an agreement on establishing the fund in March 2013.

Contributions to the fund were designed as follows: China is to contribute $41 billion, Russia, Brazil, and India $18 billion each and South Africa another $5 billion. The five central banks are working on a mechanism for contributing to the fund and for coordinating with IMF policies, an IMF spokesman said. A representative of Russia’s Ministry of Finance was unable to comment on his agency’s position on the spot.

The BRICS partners are concerned about the US Federal Reserve’s plans to start tapering its liquidity injection programme (the US regulator is spending $85 billion monthly on asset purchases). The release of the FOMC July meeting minutes last week sent GEM currencies tumbling. Brazil’s real and India’s rupee (which fell to more than 68 to a dollar this week) weakened the most. Brazil was forced to announce a $60 billion intervention to prop up liquidity. The rupee has lost over 20 percent year to date, the real declined 15.5 percent, South Africa’s rand 18.07 percent, the rouble 3.95 percent.

IMF Managing Director Christine Lagarde has advised G20 central banks to build common defences. She said the Federal Reserve and other major central banks should take the implications of the stimulus tapering for all economies into account. Emerging markets are willing to increase their global financial market clout, according to Andrew Cunningham from Capital Economics: “But the question is how much are they prepared to pay for that.”

First published in Vedomosti.ru.

All rights reserved by Rossiyskaya Gazeta.

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