Reconfiguring International Financial Institutions: The BRICS Initiative

This paper examines the implications of the establishment of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) for the international financial system and for the BRICS countries. Their establishment is placed in the context of the current international aid architecture and of the international monetary system (IMS) and the economic performance and needs of developing countries. Developing countries have been dissatisfied with the governance system, the operations and the lack of reform of the World bank and the International Monetary System. Dissatisfied at their lack of success in engineering reform developing countries have moved to a positive phase of devising new institutions that could meet their needs. The scope for the NDB to break new ground is greater. Not only additional aid would be made available but the NDB could break new ground in project preparation and implementation that might force the current multilateral development banks to alter their practices. But the task of replacing the IMF is more difficult. A new IMS can only come into being if it is universal. A group of developing countries even if very large cannot develop a new international monetary system. The CRA can only provide a welcome new source of BOP finance.