This year’s BRICS Leaders’ meeting put forward the idea of establishing a development bank for this group and other emerging economies. The leaders reasoned that “developing countries face challenges of infrastructure development due to insufficient long-term financing and foreign direct investment, especially investment in capital stock”. The leaders promised the contingent reserve arrangement with an initial size of US$ 100 billion.
US$ 100 billion is certainly a whopping amount in the eyes of ordinary people. But the establishment of a new intergovernmental bank is not just about money. It also has great significance in terms of global financial governance, which will in turn affect each country’s ability to mobilize capital and its global influence.
The well known multilateral financing institutes include like World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), Inter-American Development Bank (IDB), African Development Bank (AFDB), etc. Although these banks are supposedly governed in equal shares by members, there are implicit rules that regulate the operation of the administration. For instance, the presidents of the World Bank always come from Europe and the presidents of the IMF are mostly Americans. Even at the regional level, there are traditions to be broken. For example, the presidents of the ADB are primarily Japanese.
These implicit rules are derivatives of the old capitalist world. The dominant countries represent the major players of the capital flow. But compared to the last century the direction of capital flow is changing. New heavy weights are emerging. If the emerging economies cannot overtake the current governance structure, they will find new ways out. The establishment of new multilateral financing institutions provides the avenues to reshuffle the influences of major capital holders around the world, and it is actually necessary and healthy for a changing international dynamics.