wednesday, 8 july of 2015

BRICS nations agree to create $100 billion forex pool

The 5-nation BRICS group today signed an agreement to create a USD 100 billion pool of foreign- exchange reserves to help each other "in case of any problems with dollar liquidity", with India chipping in USD 18 billion.

India's contribution of USD 18 billion to the Pool will be same as that of Brazil and Russia. China would put in the maximum of USD 41 billion, while South Africa would chip in USD 5 billion.

"The central banks of Brazil, Russia, India, China and South Africa have signed Operational Agreement on July 7, 2015 in Moscow. The Agreement outlines the terms of mutual support for member states in the framework of the Agreement on BRICS Pool of Conventional Currency Reserves," the Russian Central Bank said in a statement.

The fund will be an "insurance instrument" that members nations could draw on if they experience problems with their balance of payments.

The Pool will go into force on July 30. No new members are planned to be included in it.

The Operational Agreement details working procedures of the Pool to be observed by BRICS central banks, and defines their rights and obligations.

"The Pool is tasked to ensure mutual provision of US dollars by the central banks of BRICS members in case of any problems with dollar liquidity. Thus, this new insurance network is designed to maintain financial stability of its member states," the statement said.

The Agreement on setting BRICS Pool of Conventional Currency Reserves was signed on July 15, 2014 at the summit in Fortaleza (Brazil).

The agreement was signed in Moscow after a meeting of the Finance Ministers and heads of the central banks of the BRICS countries.

The Pool would help BRICS members to maintain financial stability in case of volatility in dollar exchange rate.

India's foreign exchange reserves dipped by a marginal USD 237.5 million, to USD 355.221 billion, in the week to June 26 on account of slight decline in a key component, the Reserve Bank of India data showed.

In the previous reporting week, the reserves had touched a life-time high of USD 355.46 billion.

The agreement on the insurance pool comes ahead of the two-day Summit of the BRICS leaders in Ufa beginning tomorrow. The Summit could look at the possibility of starting credit facility in local currency by the BRICS Bank.

The first head of the Bank is noted Indian banker K V Kamath.

The Summit of the key emerging economies in the world, will focus discussions on enhancing cooperation in economic area, including the possibility of trade in local currency.

India hope to get more funds for infrastructure development from BRICS bank, which will start with an initial paid-up capital of USD 50 billion with each BRICS country contributing USD 10 billion. Its authorised capital is USD 100 billion.

The BRICS nations account for nearly USD 16 trillion in GDP and 40 per cent of the world's population.

(Published by The Economic Times - July 7, 2015)

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