The New Development Bank (NDB), established by the BRICS group of major emerging countries, is planning to increase its local currency fundraising and lending in light of Western sanctions against its founding shareholder, Russia. The move is seen as an effort to reduce the impact of foreign exchange fluctuations, rather than a complete de-dollarization of the bank.
South Africa, which is set to host a summit of BRICS leaders in Johannesburg later this month, has voiced its support for an increase in the use of local currencies among NDB members. Finance Minister Enoch Godongwana emphasized that while the bank is not currently doing as much as member countries require, increasing local currency use is the strategic direction being pursued.
The NDB, headquartered in Shanghai, was established in 2014 by Brazil, Russia, India, China, and South Africa to provide funding for infrastructure and sustainable development projects. It officially opened for business in 2015 and has since been joined by additional members such as Bangladesh, the United Arab Emirates, Egypt, and Uruguay. Saudi Arabia is also in talks to become a member.
Leslie Maasdorp, the NDB’s Chief Financial Officer, noted that the bank aims to raise local currency lending from its current level of about 22% to 30% by 2026. However, he highlighted the importance of the US dollar as the bank’s operating currency due to the large pools of liquidity available in dollars. The bank will remain responsive to its members’ demands and will determine the currency mix based on those demands.
The need to increase local currency fundraising and diversify capital sources has been attributed to US sanctions on Russia. Analysts suggest that these sanctions have highlighted the importance of reducing dependence on US capital markets for the NDB. By increasing local currency lending and attracting new members, the bank can become less reliant on US dollars.
According to the NDB’s April investor presentation, the bank has approved over $30 billion in loans so far, with two-thirds denominated in dollars. However, the bank’s strategic goal is to decrease its reliance on the dollar and increase the use of local currencies.
The move towards local currency fundraising and lending aligns with the broader trend among emerging economies to reduce their exposure to external shocks and fluctuations in foreign markets. It also reflects a desire for greater financial autonomy and sovereignty.
As the NDB prepares for the upcoming BRICS summit in Johannesburg, discussions surrounding local currency use and reducing reliance on the dollar are expected to feature prominently. This reflects the shared understanding among BRICS member countries that increasing local currency lending is crucial for the future success and stability of the NDB.
In conclusion, the NDB’s decision to increase local currency fundraising and lending is motivated by the Western sanctions on Russia and the desire to reduce exposure to foreign exchange fluctuations. While the bank recognizes the importance of the US dollar, it aims to diversify its currency mix based on its members’ demands. This move aligns with the broader trend of emerging countries seeking financial autonomy and reducing dependence on external markets. The upcoming BRICS summit in Johannesburg is likely to address these issues and further promote the strategic goal of increasing local currency use within the NDB.
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