Leaders of Brazil, Russia, India, China and South Africa inked a deal on Tuesday to launch a development bank with an initial $50 billion capital and a $100 billion monetary reserve.

According to the accompanying declaration, the bank and the fund aim "to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies", and are intended to serve as an alternative to the Western-dominated World Bank and International Monetary Fund (IMF)

The five countries decided that the New Development Bank (NDB) would be headquartered in Shanghai and its initial subscribed capital will be equally shared among founding members, according to the Fortaleza Declaration.

The first chair of the Board of Governors will be from Russia, the first chair of the Board of Directors from Brazil, and the first president of the bank from India.

The establishment of the BRICS Development Bank and the contingency reserve arrangement (CRA) help promote a multilateral financial diplomacy advocated by China.

Lin Yueqin, director of China Social Science magazine, told People’s Daily Online that in recent years, China's diplomacy has come under a lot of pressure. With the help of the multilateral mechanism and platform, China will have more say in the world.

Lin said that in response to international financial turmoil, the NDB will use the RMB for trade and investment in BRICS. It will certainly help to promote the internationalization of the RMB.

In the long term, the NDB will help to rebuild the international financial order and break the major powers’ monopoly of the international financial system. The mechanism of joint development will be open to more developing economies, and form an emerging force.

In terms of economic function, the NDB will provide long-term development aid to developing countries. The monetary reserve will provide an economic stability fund to help BRICS countries respond to financial emergencies, associate professor Li Wei of Renmin University said in an interview with People’s Daily Online.

Li said that the BRICS Development Bank and the CRA will help emerging nations to borrow cash for building highways, power stations and other major infrastructure projects, and to better cope with the risks created by international capital flows and the impact of financial turmoil.

Since the end of World War II, under the Bretton Woods financial system created by its victors, the World Bank and the International Monetary Fund have had a near monopoly on development and emergency financing.

"Developing countries have begun to self-organize and set up their own programs in response to the current international economic order." Zhang Haibing, researcher of Shanghai International Study Institute believes that the NDB is an effective complement to the existing international multilateral development cooperation mechanisms.

Zhang said that its impact on the developing world could be enormous – freeing it from the Western-dominated financial institutions and stimulating accelerated growth in emerging markets.

Speaking at a press conference during his visit to Beijing on July 8, World Bank President Jim Yong Kim regarded the NDB as a new force for battling poverty and sharing prosperity globally.

"The need for new investment in infrastructure is massive. We think we can work very well in cooperation with the new banks once they become a reality." According to Kim, the establishment of the NDB, catering to the need for infrastructure investment in developing countries, is welcomed by the World Bank.

The World Bank provided 60 billion US dollars last year. When combined with investment from private sectors, the total added up to around 150 billion US dollars, far short of real demand. 

The article is edited and translated from the Chinese version of 《金砖银行撬动世界金融治理格局》，source: People's Daily Online.