BRICS & NEW DEVELOPMENT BANK –
INTERNATIONAL REALTIONS
NEWS: Trump declared that the US would not
trade with BRICS nations, and if any trade were to happen, he would impose
a 100% tariff on BRICS countries.
WHAT’S IN THE NEWS?
- US President Donald Trump’s Announcement:
- US
President Donald Trump recently announced that the United States will
not engage in trade with BRICS nations.
- He
further stated that even if the US were to engage in any form of trade
with BRICS countries, he would impose a 100% tariff on their goods.
- Trump’s Criticism of BRICS:
- Trump
declared that BRICS is "dead" and was created for a bad
purpose.
- He
has been a long-time critic of global trade alliances that he believes
undermine US economic and political dominance.
- Concerns Over BRICS’ Currency Initiatives:
- Trump
demanded that BRICS nations make a firm commitment to cease any
attempts at creating a new international currency or backing existing
currencies to compete with the US dollar.
- This
comes amid ongoing discussions within BRICS about reducing reliance on
the US dollar for global trade and financial transactions.
- Upcoming BRICS Summit in Brazil:
- Brazil,
which currently holds the rotating presidency of BRICS, has
announced that the next BRICS Summit will be held in Rio de Janeiro on
July 6-7, 2025.
- The
summit will likely focus on economic cooperation, trade strategies,
and reducing dependency on Western financial institutions.
Key Takeaways About BRICS
1. Expansion
of BRICS Membership
- BRICS was initially composed of five major
emerging economies:
- Brazil,
Russia, India, China, and South Africa (BRICS).
- In January 2024, Indonesia officially joined
BRICS, expanding the group’s membership to 10 nations.
- Other new BRICS members include:
- Egypt,
Ethiopia, Iran, and the United Arab Emirates (UAE).
- With its expanded membership, BRICS now represents:
- Almost
half the world’s population.
- Approximately
one-quarter of the global economy.
2. Origin and
Evolution of BRICS
- The term BRIC was first coined in 2001 by
Goldman Sachs in its global economics paper, "The World Needs
Better Economic BRICs".
- The paper projected that Brazil, Russia, India,
and China would become some of the world's largest economies within the
next 50 years.
- The concept of BRIC as a formal group took
shape after a meeting between the leaders of Russia, India, and China
in 2006, on the sidelines of the G8 Outreach Summit in St.
Petersburg.
- The group was further formalized at the first
BRIC Foreign Ministers’ Meeting during the UN General Assembly (UNGA) in
New York in 2006.
- The first official BRIC Summit took place in
Yekaterinburg, Russia, in 2009.
- In 2010, during the BRIC Foreign
Ministers’ Meeting in New York, it was decided to invite South
Africa into the group.
- South Africa officially joined BRICS in 2011
and participated in the 3rd BRICS Summit in Sanya, China.
The Rationale for Creating BRICS
1. Addressing
Global South Representation
- Many Asian, African, and Latin American
countries have long criticized the dominance of Western nations in
global institutions, such as:
- The
United Nations (UN).
- The
International Monetary Fund (IMF).
- The
World Bank.
- These institutions have been historically
dominated by the US and European countries, leaving limited room for
emerging economies to influence global decision-making.
- BRICS was created to provide a unified platform
for major developing economies and to enhance their representation
in global governance structures.
2. Countering
US and Western Influence
- Following the collapse of the Soviet Union in
1991, the United States emerged as the sole global superpower.
- Many nations, including those in BRICS, saw the
need to counterbalance US dominance in global politics, trade, and
finance.
- BRICS allows its members to coordinate policies
and strategies that reduce Western economic and political influence in
global affairs.
3. Alternative
Global Economic Platforms
- Historically, the G8 (later G7 after Russia’s
removal in 2014) was a grouping of the world’s largest advanced
economies.
- The G20 was created to provide a more inclusive
platform, bringing in major developing economies such as India,
China, and Brazil.
- Similarly, BRICS was established to serve as an
independent economic forum, strengthening economic ties and
cooperation among member states.
4. Economic
and Financial Cooperation
- One of BRICS' primary objectives is to strengthen
economic partnerships between its members.
- To achieve this, BRICS nations established the New
Development Bank (NDB), which aims to:
- Provide
financial assistance to developing nations.
- Offer
an alternative funding mechanism to the World Bank and IMF.
- Finance
infrastructure and development projects in emerging economies.
New Development Bank (NDB)
1. Formation
and Objectives
- The idea of the New Development Bank (NDB)
was first proposed during the 2012 BRICS Summit in New Delhi, India.
- The official agreement to establish the bank was signed
on July 15, 2014, during the BRICS Summit in Fortaleza, Brazil.
- The bank officially became operational on July
21, 2015, under what is known as the Fortaleza Declaration.
2. Financial
Structure of NDB
- The NDB was launched with:
- An
initial authorized capital of $100 billion.
- An
initial subscribed capital of $50 billion, equally shared among
the five founding BRICS members.
3. India’s
Contribution to NDB
- India has contributed $2 billion to the NDB,
paid in seven instalments from 2015-16 to 2021-22.
- As of December 2024, there are 20 ongoing
infrastructure projects in India funded by the NDB, with a total loan
value of $4.867 billion.
Reducing Reliance on the US Dollar
1. India’s
Steps Toward De-Dollarization
- In response to US-imposed sanctions on Russia in
2022, the Reserve Bank of India (RBI) introduced new guidelines
allowing international trade transactions in Indian Rupees (INR).
- This move was aimed at reducing India's
dependency on the US dollar and promoting the rupee as an
alternative global trade currency.
2. BRICS
Report on Financial System Reforms
- In 2023, a BRICS financial report by Russia
highlighted that:
- BRICS
does not seek to replace the US dollar entirely.
- Instead,
it aims to create an alternative financial system that is more
competitive and efficient.
3. Challenges
with the Current Global Financial System
- The current international payments
infrastructure lacks competition, as it is heavily reliant on
Western financial institutions.
- The US has weaponized financial tools,
including:
- Banning
Iran from the SWIFT banking system in 2012.
- Excluding
Russia from SWIFT in 2022 due to the Ukraine war.
- These actions have prompted many countries to
explore alternative payment systems to protect their economies from US
financial sanctions.
Major Projects funded by NDB in
India:
- It
has committed funding to a number of major infrastructure
projects in India, including the Mumbai Metro rail, Delhi-Ghaziabad-Meerut
Regional Rapid Transit System and many Renewable
Energy projects.
- The
NDB has so far approved 14 Indian projects for an amount of nearly USD
4.2 billion.
- In
2020, India announced a 1 billion USD loan pact with NDB to
boost rural employment and infrastructure.
Achievements:
- Innovations:
- The NDB has managed to innovate in some
areas, such as lending in local currencies to protect borrowing
countries from a stronger dollar, which was one of its founding
features.
- Another innovation is that the bank
accepts parameters for compliance with environmental and social
standards designed by borrowers, respecting its members’ own
policies.
- Partnership
with other Development Banks:
- It has established partnerships with important
development banks, such as Latin American regional development bank CAF,
the China-led Asian Infrastructure Investment Bank, and
the World Bank group.
- AA+
Credit rating:
- The NDB’s credit rating is AA+,
one short of the maximum, which other development banks such as AIIB
have. This is despite many of its members, notably Brazil and South
Africa, facing tough economic times domestically.
- Emission
of Various bonds:
- The bank has successfully emitted a number of
bonds — including ‘green bonds’ in 2016 — and has now
approved 42 projects in member countries for a total of over USD 12
billion, more than the AIIB's roughly USD 8 billion portfolio.
Issues:
- Less
disbursal of Loans:
- Though the bank has approved over USD 12 billion
in loans, it has disbursed less than USD 1 billion so far, that is a
very low figure.
- Political
Turmoil:
- Relations between China and India soured,
sanctions against Russia made it difficult to lend to Russian companies,
and then there was political instability and economic crises in both
South Africa and Brazil.
- Continuing to advance the interests of the
developing world in a rough political climate proved to be a hard task
at which member countries don’t seem to have excelled.
- Issue
of Sustainability:
- Though the NDB has recently approved loans for
climate change mitigation and adaptation in Brazil and renewable energy
in India, it has labelled a number of projects that are environmentally
questionable as sustainable, without explaining the criteria it uses.
- One of its sustainable projects
is the paving of the Trans-Amazonian highway in Brazil,
a highly controversial road that many environmentalists blame for
exacerbating deforestation in the world’s largest tropical rainforest.
Conclusion
- BRICS continues to expand its membership and
influence, with Indonesia, Egypt, Ethiopia, Iran, and the UAE
joining in 2024.
- The New Development Bank is growing in
importance, funding infrastructure projects that offer alternatives
to IMF and World Bank loans.
- Trump’s aggressive stance on BRICS trade
policies may push member nations closer together, strengthening
their economic cooperation and accelerating efforts to reduce
dependence on the US dollar.
- The upcoming BRICS Summit in Brazil (July 2025)
will likely focus on expanding trade agreements, enhancing financial
independence, and strengthening geopolitical alliances.
Source: https://indianexpress.com/article/upsc-current-affairs/upsc-essentials/knowledge-nugget-brics-ndb-new-development-bank-upsc-trump-modi-9837310/