According to the president of the bank, the development bank created by the Brics countries plans to start lending in South African and Brazilian currency as part a plan that aims to reduce the reliance on dollars and promote a multipolar financial system.
Dilma Dilma is the former Brazilian president who leads the New Development Bank. She also stated that the Shanghai-based lender, which has about 15 applications to join, was evaluating them and would likely approve four or five. She refused to identify the countries, but stated that it was important for the NDB’s geographic representation to be diverse.
Rousseff stated that “we expect to loan between $8bn and $10bn this year.” Rousseff said that the goal was to lend 30 percent of all money we loan. . . in local currency.”
She said that the NDB will issue rand debt for lending in South Africa, and “do the same thing in Brazil using the real.” We will either try to do a currency exchange or issue debt. Also in rupees.” Currently, the bank lends in renminbi.
The goal of the nations of the Brics is to encourage the use of alternative currencies in financial and trade transactions.
The Brics nations – Brazil, Russia India China and South Africa – established the NDB as a financial institution that is not dominated by the US, such as the IMF or World Bank.
The NDB has loaned $33bn to infrastructure and sustainable projects, and now includes Egypt, Bangladesh, and the United Arab Emirates, as well as Uruguay, which is in the final stages.
Rousseff stated that lending in local currencies would allow borrowers to avoid the exchange rate risk as well as fluctuations in US interest rates. She said that local currencies were not an alternative to the dollar. “They are alternatives to a particular system.” The system is unipolar so far. . . It’s going be replaced by a multipolar system.”
By not imposing political conditions to loans, the Brics Bank has tried to differentiate itself from both the World Bank and IMF. Rousseff stated that “we reject any conditionality”. Rousseff said that loans are often given on the condition of certain policies being followed. We don’t. “We respect the policies of every country.”
The NDB, despite its desire to provide an alternative to US-based financial orders, has been forced by sanctions and the threat of being cut off from international financial systems to suspend all activities in Russia. Rousseff acknowledged that “you can’t deny [that the international financial system] exist”. You have to accept it.
Fitch downgraded NDB’s debt last year from AA+ (with a positive outlook) to AA (with a negative one), citing the bank’s exposure to Russia. It said that the bank “could have challenges issuing a long-term Bond on US Capital Markets”.
The rating agency attributed this to the reputational risk associated with the bank’s part-Russian ownership, which will see Moscow hold 19.4% of the capital by the end of 2021. Fitch lowered the outlook of the NDB to stable after it issued a green bond worth $1.25bn in May, but didn’t restore its AA+ rating.
Rousseff stated that she believes the bank has plenty of room for growth, stating that it is the youngest of all the development banks in the world at only seven years of age. She said, “We will transform ourselves into an influential bank for emerging markets and developing countries.” “Our focus must be on a bank created by developing countries, for themselves,” she said.