BRICS bank vis-a-vis IMF

Last week's agreement by the five BRICS member states to establish a development bank along with a currency reserve pool, they called the Contingency Reserve Arrangement, set off a storm of commentary suggesting that these new institutions would be rivals to the World Bank and the International Monetary Fund. But the key question of how they will operate remains unanswered, perhaps because the five countries haven't yet agreed on it among themselves. Perhaps, they will also be marginal players on the global stage in the foreseeable future.

The resources the BRICS bank (the official name is the New Development Bank), given its size, can mobilize will depend on several factors, including how cheaply it can borrow from international markets, how quickly it scales up its lending and capital base, and the average duration of loans.

Taking other development banks as a guide, we (at Capital Economics) estimate that loans could average $5-10 billion a year over the coming decade. That's less than one-third, taking the upper limit into consideration, of the $32 billion that the World Bank extended last year. More significantly perhaps, it is also a fraction of the amount lent abroad by China Development Bank, which now lends a similar amount to emerging economies each year as the World Bank. Viewed from this perspective, the World Bank already has a powerful rival from within the BRICS bloc.