The New Development Bank to be set up by BRICS nations will be based in Shanghai, the group has announced. The leaders announced the creation of a new development bank, to be based in Shanghai, and a reserve fund seen as counterweights to Westernled financial institutions.
The US$100 billion lender, which is intended to provide an alternative to Western-led institutions such as the World Bank and International Monetary Fund, will occupy offices to be built on the site of the former World Expo.
Brazil, Russia, India, China and South Africa signed documents to establish the bank. It will begin with a subscribed capital of US$50 billion divided equally between the five nations, and is expected to make its first loans in 2016.
In the future, membership of the bank will be open to other countries, but the founding agreement — part of the wider Fortaleza Declaration — states that the capital share of the BRICS nations cannot fall below 55 percent.
The BRICS summit also agreed the formation of a US$100 billion reserve fund, the bulk of which (US$41 billion) will be contributed by China. Brazil, India and Russia will each provide US$18 billion and South Africa US$5 billion.
Brazilian President Dilma Rousseff said the creation of the contingency fund was “a sign of the times.”
“It will help contain the volatility faced by diverse economies as a result of the tapering of the United States’ policy of monetary expansion,” she said.
While China is set to host the bank, it won’t preside over it for two decades. India will serve as president for the first five years, with Russia first to chair its board of governors and Brazil the first chair of its board of directors. The positions will rotate every five years, the nations’ leaders said in a joint statement.
As well as the Shanghai headquarters, a regional center for the lender will be opened in South Africa, it said.
Reuters said negotiations over the location of the headquarters and first presidency lasted until the eleventh hour due to differences between India and China.
“We pulled it off 10 minutes before the end of the game. We reached a balanced package that is satisfactory to all,” a Brazilian diplomat said.
The bank’s creation is a boon for cash-strapped developing countries, whose funding applications to improve poor roads and railways have been repeatedly rejected by international lenders which attach strict loan conditions, Xinhua news agency reported.
It will give developing countries a greater say in the international financial order, a theme President Xi Jinping struck ahead of the summit, the Ministry of Finance was quoted as saying by Xinhua.
Local analysts were positive about the selection of Shanghai as a base for the bank.
“The choice of Shanghai is smart,” said Wu Libo, deputy director of the Center for BRICS Studies at Fudan University.
“It delivers a message about the importance of Shanghai as a financial center and its role in accelerating the globalization of the yuan,” Wu said.
An article in Global Times said Shanghai will become the top city in the West Pacific region. It quoted Russian newspaper Moskovsky Komsomolets as saying the newly-established BRICS Bank put its headquarters in Shanghai because the city is more prominent than New Delhi, Moscow and Johannesburg.
A deputy director of Indian Observer Research Foundation said Mumbai lags behind Shanghai in infrastructure so Shanghai should play a bigger role for BRICS nations.
He said that locating the BRICS Bank headquarters in Shanghai will further cement the city’s status as a global financial center.
Russian news website gazeta.ru said Shanghai overtook Hong Kong in gross domestic product in 2009 and is the forerunner of China’s economic reform and opening.