Credits By: Modern Diplomacy
The BRICS economic alliance founded and directed the New Development Bank (NDB), which is pursuing de-dollarization by reducing its dollar-denominated lending activities.
The NDB, which has its headquarters in Shanghai, focuses more on using BRICS currencies, such as those of South Africa, Brazil, and India. The Financial Times quoted NDB President Dilma Rousseff as saying they plan to lend between $8 billion and $10 billion this year, to do about 30% of their loans in local currency.
According to Reuters, by releasing its first South African rand bond in the middle of August and drawing bids totaling 2.67 billion rands, NDB has already started along this path. More recently, the bank announced plans to launch an Indian rupee bond in October, albeit the extent of the bond program’s implementation was not specified.
The BRICS group comprises Brazil, Russia, India, China, and South Africa, conceived the NDB in 2015 as a counterbalance to Western-led financial institutions. The NDB has lent more than $33 billion for developmental projects, slowly establishing itself.
Members of BRICS are pushing for the NDB to use local currencies more frequently as it portrays itself as a counterweight to Western power. In her interview with FT, Rousseff emphasized how this move away from the US dollar frees member countries from the risks associated with exchange rates and US monetary policy. Furthermore, NDB loans are not subject to the conditions frequently attached to borrowing from organizations like the International Monetary Fund.
Rousseff emphasized that local currencies are not alternatives to the dollar; they are alternatives to a system.
This viewpoint comes as Johannesburg, South Africa, is hosting the 15th annual BRICS conference. In light of recent geopolitical events, such as the crisis between Russia and Ukraine, BRICS has increased its rhetoric about separating itself from the dollar and has even entertained the idea of establishing its currency, but analysts have regarded this with skepticism.
Despite claims to the contrary, NDB has been highly dependent on the US dollar when making loans, which has led to recent financial difficulties. NDB had its rating downgraded by Fitch Ratings last year due to its connections to Russia, and Western investors became wary of lending the bank money. NDB’s debt servicing costs significantly increased due to the loss of this cash because two-thirds of its borrowings are in dollar terms.
In addition to the BRICS countries, Egypt, Bangladesh, and the United Arab Emirates are members of the NDB. According to Rousseff, the bank has received 15 new membership applications and is now reviewing 4 or 5.