- The internet has effectively reduced distances between two nations and helped realize the concept of globalization. Yet, nations are oft troubled by a sense of insecurity.
- In reality, globalization consists of unequal constituents representing diverse regions of contrasting capabilities and has set off trade-induced and clashes prompting nations to oft assert their right to protect themselves.
- Take for example The Fortaleza Declaration of heads of state from Brazil, Russia, India, China, and South Africa (the so-called BRICS countries) which was signed in the wake of international governance losing stability and effectiveness.
- According to it:
- A New Development Bank with an initial subscribed capital of $50 billion to be shared equally between the 5 countries will be established. Funds will be used for infrastructure and sustainable devp projects in BRICS countries.
- Other low-and-middle-income nations can also apply and buy in for funding with time.
- A Contingency Reserve Arrangement (CRA) of $100 billion to provide additional liquidity protection to member-nations during balance of payments problems.
- The CRA will be funded 41% by China, 18 per cent each from Brazil, India, and Russia, and 5 per cent from South Africa.
- Has a one-nation one-vote policy, effectively minimizing the monopoly of any one nation over its banking-related issues as opposed to the Bretton-Woods institutions — the World Bank and the International Monetary Fund which have non-equitable structures.
- An MoU of co-operation among BRICS export credit and guarantee agencies to improve the support environment for increasing trade opportunities has also been signed.
- Trigger factors:
- BRICS have now emerged as a formidable group in the global economy and have solidified ties in terms of commerce with the emerging market economies and developing countries (EMDCs).
- BRICS have been having increasingly more issues with the World Bank.
- Various reforms at the Bretton-Woods institution have failed to materialize. Even the EU and the US have failed to agree over grating BRICS a greater hand in its governance.
- Even in the past, increasing disagreements with the US-dominated IMF and World Bank had led to the establishment of:
- Development Bank of Latin America (created by Andean nations) in the 60s.
- The Chiang Mai Initiative in early 2000 (of 10 ASEAN nations plus China, South Korea and Japan) to establish a network of bilateral currency swap pacts in the wake of Asian currency crisis.
- The Bank of South by Latin American countries in 2009.
- However, the feasibility of NDB depends on various factors such as its ability to put in place a conflict resolution mechanism, a robust credit appraisal system and an effective supervisory regime.
- Back in Tamil Nadu, area-specific Nidhi companies have a greater understanding of their clients and have been helping them (members of the area) tide over their financial crises at affordable rates.
- In the global area, blocks of nation-states seem to tweak this concept, and tailor it to their larger needs.
- Read at:http://www.thehindu.com/todays-paper/tp-business/banking-on-brics/article6232132.ece