BRICS Bank Details Released

No surprises but today the details for the new BRICS bank were announced. Also it was announced the Bank headquarters will be in China as Russia leaked earlier. India will hold the Presidency of the Bank for the first six years and there will be a regional office in South Africa.

Here is the full article pasted below with just a small comment added below that:

"After some tough rounds of negotiations, BRICS nations (Brazil, Russia, India, China and South Africa) have created not only a new $100 billion Development Bank, but also a $100 billion foreign currency reserves pool.

The announcement was made after a plenary meet of the five BRICS heads of state in Fortaleza on Tuesday.

Shanghai finally won the bid to host the Bank while India will get the presidency of the Bank for the first six years. The Bank will have a rotating chair. The Bank will also have a regional office in Johannesburg, South Africa. All the five countries will have equal shareholding in the BRICS Bank.

The five Finance Ministers will constitute the Bank’s board which will be chaired by Brazil.

The Bank will initially be involved in infrastructure projects in the BRICS nations.

The authorized, dedicated and paid in capitals will amount to $100 billion, $50 billion and $10 billion respectively.

The idea of the BRICS Bank was proposed by India during the 2012 Summit in New Delhi.

BRICS have long alleged that the IMF and World Bank impose belt-tightening policies in exchange for loans while giving them little say in deciding terms. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total. The last decade saw the BRICS combined GDP grow more than 300 per cent, while that of the developed word grew 60 per cent.

Apart from the new development Bank, the group of five leading emerging economies also created a Contingency Reserve Arrangement on Tuesday.

BRICS central banks will keep their resources in their gold and foreign currency reserves.

China will fund $41 billion, Brazil, India and Russia $18 billion each and South Africa with $5 billion. The funds will be provided according to a multiple. China’s multiple is 0.5, which means that if needed, the country will get half of $41 billion. The multiple is 2 for South Africa and 1 for the rest.

BRICS Finance ministers or central banks’ governors will form a governing body to manage the CRA while it will be presided over by the BRICS President.

The BRICS CRA will not be open to outsiders.

Meanwhile, at the Summit in Fortaleza, Russian President Vladimir Putin said BRICS must form an energy alliance.

“We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said on Tuesday."

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My added comments:

Just a couple of notes from this news. First the BRICS bank will authorize up to $100 Billion which is a fairly significant number. It will ramp up over time though and probably not start lending until 2016 based on earlier reports.

The most interesting thing to me about this Bank and the Contingency Reserve Arrangement (CRA) is that it will apparently mostly consist of US dollar assets (the article notes that the BRICS Central banks will hold their resources in gold and foreign currency reserves). So it looks like this will be a way for these countries (especially China) to reduce US dollar exposure in their own reserves while using US dollars to fund lending and sort of buy influence around the world. If you step back and look at what they are doing (especially China) you can see they are reducing US dollar exposure at the same time they are increasing gold reserves. If they are doing that, maybe we all should think about doing that ourselves to some extent. The US dollar is likely to suffer in all this change so hedging it to some degree with hard assets makes sense as China and the other BRICS are clearly doing.

The article notes that the reserve fund will only be available to the BRICS nations to use in case of an emergency where liquidity is needed to stablize things. 

We'll have more on the BRICS summit the next few days and will try to summarize what the overall impact of the BRICS may be based on media reports and also input from some of our readers who are plugged into the current financial system. We will examine closely what the real agenda is for the BRICS. A desire to collapse the exsiting US dollar based system or do they just want some respect within the existing system? There are solid arguments for both positions.

Additional note: Here is Jim Rickards twitter reaction to the CRA which agrees with what we stated above about reducing US dollar exposure.

Jim Rickards

"Significance of new BRICS "Contingency Reserve" is members can hold fewer dollars, but still get partner help in a crisis. #Dollar Exit Plan."

Update 10:00 pm (CST) - Here is the official 6th BRICS Summit Fortelaza Declaration. This is a long statement and we will devote a full post to it tomorrow. One thing we see immediately is that the BRICS are making it clear they have not yet given up on the IMF, the UN, and the World Bank. We will try to cover all this and introduce you to an interesting theory about where the BRICS really intend to go with all this. The BRICS are making it clear they support Russia, but at the same time they are not looking to irritate the West. It's interesting to watch as it unfolds.

BIS Chief Warns of Another Potential Financial Crisis

Just the other day the Bank for Internationa Settlements issued their annual report warning that dangerous new asset bubbles are forming again. Now we have the head of the BIS with another strong warning. The BIS is the "Bank of the Central Banks". When they issue warnings it is foolish not to listen. Here is the latest warning with a few selected quotes below and then some comments.

"The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.

Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.

“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.

Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then. The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West.

Their debt ratios have risen 20 percentage points as well, to 175pc. Average borrowing rates for five-years is 1pc in real terms. This is extemely low, and could reverse suddenly. “We are watching this closely. If we were concerned by excessive leverage in 2007, we cannot be more relaxed today,” he said.

“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,” it said.

Mr Caruana declined to be drawn on when the bubble will burst. "As Keynes said, markets can stay irrational longer than you can stay solvent,” he said.

The BIS says prolonged monetary stimulus in the US, Europe, and Japan has led to a leakage of liquidity, contaminating the rest of the world. The rising powers of Asia are no longer able to act as a firebreak – as they did after the Lehman crash –and may themselves now be a source of risk.

The BIS is the doyen of world’s financial institutions, created in Basel in 1930 to clean up the mess left by German reparations payments under the Versailles Treaty. It has since evolved into the bank of central banks, and lately the bastion of monetary orthodoxy. It issued a crescendo of warnings in the build-up to the Lehman crisis, implicitly rebuking the US Federal Reserve and others for holding interest rates too low, which in their view robs economic growth from the future.

Confident in its cause, the BIS more or less indicts the central bank establishment of malpractice. "Policy does not lean against the booms but eases aggressively and persistently during busts. This induces a downward bias in interest rates and an upward bias in debt levels, which in turn makes it hard to raise rates without damaging the economy – a debt trap."

The International Monetary Fund has hinted that it might be best for the world to chip away its debt mountain with a few years of inflation, as the US did in late 1940s and early 1950s, armed with financial repression.

Asked whether he would support this form of loss recognition for creditors, Mr Caruana came close to choking. “It must be clearly resisted,” he said."
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My added comments: There is so much important information in this article that everyone should follow the link above and read the entire article. It is too long to fully comment on, but I will list some key bullet points that jumped out to me using the underlined portions above as a guide.

-This is the 2nd warning coming out of the BIS in a couple of weeks. And notice the intensity of the warning. In a nutshell they are warning that things are in position to go into another fianancial crisis except this time it will be worse than 2008. All the numbers are bigger and the whole world is now suffering in debt that is too high compared to GDP. These are the BIS words and not mine.

-Investors have become complacent assuming Central Bank suppression of interest rates will stay in place for a long time, yet that may not be the case.

-The Central Bank QE policies have created a "downward bias" interest rates and "an upward bias in debt levels". This "makes it hard to raise interest rates without damaging the economy-a debt trap" (and yet we have the US FED constantly saying they intend to do just this - raise interest rates)

-The IMF is suggesting trying to "inflate away the debt" over a period of years, but the BIS says this must be "clearly resisted". An Austrian economist would say the same thing. The article notes the BIS statements fly in the face of current Central Bank policies.

Reading this article is somewhat surreal for those who have followed all this for years and tried to issue these same warnings to anyone who will listen. Now we have the "Central Bank of Central Banks" saying exactly the same things. And issuing two warnings in two weeks.

It raises some reasonable questions about why all this is happening. Obviously, if the BIS knows all these problems are getting worse and won't be solved by issuing even more and more debt (as they state in the article); why are the FED and other Central Banks doing it? They have to know this is not going to end well some day. So again, why are they doing it? And why do they work so hard to convince us it is all working when the BIS is clearly warning that it is not working in this article? Something does not add up here. The BIS is the top of the food chain for Central Banks.

The only plausible answer I can come up with at this point is that all these Central Bankers really know that the present monetary system cannot be sustained. So they are doing what they can to keep it going as long as they can until whatever comes next is ready to be offered as a solution. But just to make sure they are covered when the present system does come to an end, the BIS is out here issuing clear warnings about where things really stand. It sure seems that way listening to these BIS warnings.

This blog's theme is that we believe monetary system change is coming. We have defined that as meaning the end of the current US dollar based system to be replaced with something else. We don't claim to know exactly what the "something else" will be or when it will happen. We don't try to predict those things since we don't know. We do know that the BIS is talking about the same issues we do here. They know a lot more than we do about this topic.

In our research journey here on this blog we have learned some things that could be clues. We know from people like Jim Rickards that the idea of the IMF using their SDR in some way after the next crisis is being considered. Jim openly predicts this and we know he is connected at high levels to those in the current system.

We know that new technologies (like the Klickex GSD) are being tested and may play some kind of role. We have speculated that this new technology may in some way try to connect the "internal" SDR at the IMF to an "external" currency that everyone can use. Both perhaps being asset backed instead of debt backed as the US dollar system is now to restore confidence?

Readers here are raising all kinds of other interesting questions like:

Do the Central Bankers know big change is coming and are allowing the debt in the present system to just run wild because they already know how it will be dealt with in a new system?

Is there really a "split" between the Western institutions like the IMF and World Bank and BRICS? Or do they all really know at the end of they day they will end up back using a new SDR based system when the next crisis arises? If not, will the global monetary system break down into a regional world with various blocs vying for influence and control? Worse, will chaos prevail if there is a much bigger new crisis?

Is there a master plan to handle all this in test mode and development now? Will the IMF take the leading role eventually using the SDR and new "SDR bonds" to resolve the existing sovereign debt problem?  Some are suggesting they will write off unsustainable sovereign debt and then convert the remaining sustainable debt into new SDR bonds. Is this a real possibility as the final solution? Could we someday live in a world where both Central Banks and private citizens own the same currency and use it in commerce anywhere in the world in a matter of minutes?

What role might gold (and other hard assets) play in a new system? Can the historical money (gold and silver with maybe other asset classes added in) somehow be combined with new technologies today to provide a whole new concept for how we use money and preserve savings? 

We don't the answers here. But we do think these are good questions to keep in mind as we follow this story. We are clearly living in historic times. The world is clearly changing. We are committed to following it here as best we can and doing our best to help people find answers. Change might come soon or take awhile. We do believe it is coming. It sounds like the BIS does too. Let's hope it makes things better.

Media Reports Heading into BRICS Summit

Here is a roundup of various media reports as we head into the BRICS Summit. It is already interesting to see the contrast in media reports on the BRICS between media related to those nations and western media (like the Blooomberg article we list below). Below are links to three articles out and some brief comments on each article.

First we will note this Bloomberg article titled "BRICS Fight Waning Clout with $150 Billion Deal in Brazil Summit". Funny, but you don't see any mention of the BRICS "Waning Clout" in the media articles coming from BRICS nation publications. Every article we have seen there touts the BRICS as having a significant % of the world population and GDP. This Blooomberg article is all about how this $150 Billion startup for the reserve fund and BRICS bank is too small to have any real impact on things. 

It raises questions about how the BRICS can really have much influence and says the individual countries have too many domestic issues to really become a formidable bloc right now. It quotes one expert as saying about the new reserve fund and BRICS bank, “The measures are more symbolic, designed to show they have alternative instruments to the IMF and World Bank.” 

So the first major article we find from a western media source basically yawns about the BRICS as a force to be reckoned with. The very attitude that irritates the BRICS.

Next we have this article where Russia does what we would expect. They use the BRICS summit to prove to the world that the US efforts to isolate Russia are failing. They expect the BRICS summit to rally behind them and issue a statement against the use of sanctions. They also intend to demonstrate that Russia is far from isolated in the world. They state that "the world" includes everybody, not just the US and some other western nations.

Then we have this article about another major nation in the BRICS (South Africa) arriving for the summit. Interestingly, this article makes it sound like that Russia jumped the gun in announcing that the new BRICS bank would be in China. This article suggests that an effort will be made to locate the bank in South Africa and says India and China would be OK with that. That gives another interesting item to watch during the summit.

In other news, as the Summit gets underway, we still have hot spots all over the world in the Ukraine, Iraq, and Isreal. Any or all of those could flare up into larger conflicts. All of them can also impact global energy supplies. So July is turning out to be an active month so far.

BRICS to Woo Arab States?

This new article in the BRICS Post allows us to expand on the previous post about how non aligned regions of the world may view the BRICS. The previous post covered an article written more from a Middle East perspective. This article is cleary more of a sales pitch to try and get the Arab States to align with the BRICS.

Below we select some quotes from the article and then add our comments in bold below the quote. 

"Arab nations should have taken a leaf from the book of South American states by seeking representation in the five-nation summit of BRICS nations on July 15 and 16 in Fortaleza, the North-Eastern coastal city of Brazil."

Right at the start of the article the pitch begins. The Arab nations should have sent representatives to the BRICS summit like South American nations are doing.

"The significance of the 6^th BRICS Summit is the potential it could offer for Arab rentier economies, ranked amongst the richest in the world, to break free of the rent-petrodollar recycling ‘vicious circle’, which ties oil-rich states to a West-specific model of development. "

The US dollar has become the global reserve currency largely due to its adoption for global energy trading becoming what is known as the "petrodollar". A move by Arab nations away from the petrodollar is one the big signposts we watch for here that would lead to monetary system change. So it is no surprise this pro BRICS writer would like to see that happen.

"With their fiscal surplus reserves oil-rich states could book themselves not only a role within the BRICS group, but also as partners in the reconstruction of a new socio-political paradigm that shifts and distributes political and economic power from the traditional gatekeepers of the Western global economy (with its still dominant Bretton Woods instruments made up of the IMF and the World Bank) for the greater sake of even and sustainable development. To this end, the oil-rich states are not called upon to renounce partnership with the established economic and financial system dating from the post-war period, but to diversify membership and partnership in ways that widen their margin of existence in the global arena."

The pitch is subtle. Come on in and join the BRICS efforts to "distribute political and economic power from the traditional gatekeepers" (the IMF and World Bank). No need to drop out of those western institutions, just get yourself a place in the new BRICS system to go with your place in the old system ("widen your margin of existence").

"For the Arab World, there is an additional agenda with which BRICS presents all developing countries: reforming the United Nations as well the Bretton Woods system’s conditionality that renders development insensitive to issues of social justice, more often than not stressing market logic and ideological agendas — along the lines of ‘there is no free lunch."

Translation of this paragraph = The BRICS will not be power seeking lenders who put oppressive repayment burdens on those they lend to like the western institutions have.

"Arab partnership in BRICS could create openings for political dialogue, breaking political monopolies eventually. Arab-Israeli peace, defusing of the Iranian nuclear issue (as BRICS upholds Iran’s right to nuclear technology but within anti –disarmament guidelines), and helping cessation of violence in Syria and Iraq would benefit for wider discussion and new interlocutors (e.g. Brazil, India, South Africa) with fresh viewpoints.

The BRICS group offers fresh attempts at international solidarity away from ideological posturing. It has the potential of adding value to the enlivening of multilateralism with an eye on levelling the playing field and even distribution in the economic arena. The political bonus would be global pluralism with the potential of new visions and new hopes. In theory, BRICS and Arab contribution to it sound promising. In practice, the litmus test will come if re-doing development by BRICS plays the trump card of sustainable and even development."

Translation of these 2 paragraphs = Look what a mess the West has made in the Middle East. Why not give the BRICS a shot at doing better. Maybe a fresh approach will lead to peace and prosperity for all. But the last sentence offers a reality check. All this sounds good in theory but will the BRICS really be "good lenders" and treat borrowers fairly?

This is a great article to read and consider leading into the BRICS summit. It is clear that the new BRICS bank is going to get off the ground now and the competition with the IMF and World Bank could begin as early as next year. Efforts will be made to change existing alliances and draw broad global support for the BRICS bank. Those nations around the world who have mostly just been borrowers will now become coveted. Especially those like the Arab Nations with huge energy reserves. Will they move away from the West and towards the BRICS? We'll see. If they drop the petrodollar, the implications for the current UD dollar based monetary system are huge.

How Does the World View the BRICS?

One thing we try to do here is cover a story from the perspective of various other regions around the world. If all we want is the western mainstream media view, that is easy to access at any time. We think there is value in taking a look at how other parts of the world look at things. With that in mind, here is a recent article about the BRICS that appeared in Aljazeera America. This article is by Fullbright Fellow Micheal Pizzi who claims expertise in the Middle East and writes freelance for Aljazeera America.  We'll look at his article and then offer a few comments.

Below are some quotes from this article and then a few comments. While this article is actually written by a freelance writer from New York, we can assume it carries weight in the Middle East since it is being run by Aljazeera America.

"After more than six decades of dictating development policy in much of the emerging world, the Western-led International Monetary Fund and World Bank may soon have some competition."

"The BRICS nations first announced their plans for the bank in March 2013 but struggled to reach an agreement over China’s desire to hold a greater stake in the institution. But a Brazilian government official told Reuters last week that the five members were ready to split funding and control equally, clearing the last major hurdle for a launch in 2016."

"To economists in the developing world, who have long criticized the World Bank and IMF as anathema to the countries they purport to help, the New Development Bank holds tremendous promise. Critics say the West has taken advantage of its monopoly in international lending to wield outsize influence in the economic and political affairs of developing countries, dictating development models that further entrench these countries' subservience to the West."

"When a country applies for cash from the World Bank or IMF, it agrees to a set of structural adjustment policies (SAPs) designed to close budget gaps — measures like cutting domestic spending, ending subsidies or freezing wages. Critics say these programs curtail the development and diversification of a country’s domestic industries in favor of export production to the West. Some have likened the relationship to an iteration of neocolonialism."

"At the same time, the IMF and World Bank have refused to grant the emerging world — the BRICS countries included — greater voting power to reform these institutions, even though emerging economies now contribute substantial funding. As South Africa’s former Finance Minister Pravin Gordhan put it: “The roots of the World Bank and IMF still lie in the post–World War II environment.”

"At least to begin with, the new bank will be only a minor competitor. The BRICS can’t compete with the liquidity of the $755 billion IMF or the 66 years of development experience under the belt of the World Bank. For those reasons, it may not be surprising that the World Bank president himself said he “welcomed” the unprecedented venture, calling the bank a “natural extension of the need for more investment in infrastructure” than the World Bank can provide."

"For now, said Rachel Ziemba, director of emerging markets at Roubini Global Economics, “the BRICS' goals are less about replacing the IMF and World Bank and more about supplementing them."

"But in the past few months, the West has been engaged in a tug-of-war with Russia over the crisis in Ukraine. Russia has responded by inking an unprecedented $400 billion gas deal with China to shift energy exports away from Europe. And Russia’s second-biggest financial institution announced it would bypass the U.S. dollar as reserve currency in its dealings with the Bank of China."

In light of all the talk about an emerging “rebalance” of the world order, some say the BRICS' challenge has taken on new meaning. In a column he co-authored for Project Syndicate, the former chief economist of the World Bank, Nobel laureate Joseph Stiglitz, has cited the imperative for “rebalancing” and fresh perspectives from the emerging world in arguing that the BRICS bank was “clearly needed.”

“Confessions of an Economic Hitman” author Perkins added that the bank could be the first major challenge to U.S. financial hegemony since the Soviet Union folded in 1991. “During the Cold War, countries in Africa, Latin America, the Middle East who felt bullied by the U.S. could turn to the Soviet Union, pressuring the U.S. to moderate its tactics. Today, we’re starting to see a new consciousness about the need for another balancing power.”

"But for all the charges of modern-day colonialism lobbed against the West, it isn’t clear who would be willing to align with such a diverse coalition as the BRICS. It's hard to name a country that hasn’t had a run-in of some sort with one of its members. For example, even if the BRICS bank had the funds to offer a country like Ukraine the massive bailout it recently accepted from the IMF (it doesn't), Kiev likely wouldn't want a loan that came, in part, from Russia."

"And there is rising concern about the motivations of China, which for decades has been lending easy money to many African countries that have a deep-seated wariness about Western meddling. Beijing has financed at least $128 billion in African development projects since 2000, and it has done so without interfering in domestic affairs."

"But many Africans are concerned that the relationship has begun to take a neocolonial turn as China invests in the extraction of Africa’s vast resources and opens new markets for selling its manufactured goods. The then-governor of Nigeria’s Central Bank, Mallam Sanusi Lamido Sanusi, made headlines last year when he warned Africans to shake off their “romantic view of China,” which he called “an economic giant capable of the same forms of exploitation as the West.”

“People in Latin America have been saying for years that they’d rather take loans from China than the U.S. to a large degree, because China does not have a history of overthrowing governments and assassinating leaders,” said Perkins.

“But they also know that by accepting loans they’re giving China a foothold into their countries to behave like the U.S. It just hasn’t happened yet.”

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my added comments: There is a lot of meat in this fairly well balanced article. On the one hand it notes the potential for the BRICS bank to become a serious competitor to the IMF and World Bank. But it also points out the "wait and see" attitude some nations are going to have about this new bank. Some points I take from this article are:

-Countries outside both the US/EU and the BRICS are very wary of the motivations of any global lending institution. They think these institutions have a track record of using their lending power to control other nations rather than just help them grow. And some nations are wary that this new bank may just be an Eastern version of what they don't like about the IMF and World Bank.

-The article points out that the BRICS themselves don't have a long track record of working together and have their own differences. So how well they manage those differences to work together will be watched globally. And who takes the lead within BRICS? Russia seems to take the media lead while China seems to quietly take the financial lead.

-The article quotes western leaders as acting as if they welcome the new BRICS bank and don't view it as a threat. Instead they talk in terms of it "supplementing the IMF and World Bank". The article quotes Joseph Stiglitz (former World Bank chief economist) as calling for "rebalancing" (another word for "reset"?) and that "fresh perspectives" from the BRICS are needed and a good thing.

Concluding comments: This article provides a good example of what we are trying to figure out here on this blog. Just what is the true purpose of this new BRICS bank and reserve fund? On the surface both sides seem to try and downplay that it is a confrontation between East and West (except Russia lately is openly leading an anti-US dollar campaign with the situation in the Ukraine creating tensions). 

But one has to wonder what is really going on beneath the surface. Russia's recent open attacks on both the Western global institutions and its US dollar based system makes you think the real goal is to bring down and replace that system. China and the other BRICS nations would not say this publicly because that is not how the operate. Russia seems perfectly happy to be "in your face" about it.

But we also see in almost every article on this topic that the BRICS seem to want "meaningful reforms" at the IMF, World Bank, the UN, etc. Even Putin's recent comments suggest this line of thinking. Why bother with that if your goal is to eliminate and replace those institutions?

So we wait and see what happens. In time the truth will be obvious as to what the true objectives are. We will continue to follow it here. We'll try to continue to offer a variety of perspectives from around the world since western mainstream media does not bother to do that. They concentrate on presenting the western view (western banking establishment view) and not much else.

Added note: A blog reader here just sent me this article link:

http://thebricspost.com/arab-less-brics-in-brazil/#.U8LbxfldWSo

This ties perfectly into this post. It shows how the Middle East and other areas not in the US/EU bloc or the BRICS bloc are being courted and are taking a "wait and see" approach. If a real competition unfolds, they can finally be consumers who have a genuine choice (like finally getting two electric companies in town :). 

Mabe then we will find out if all the "nice talk" from Western sources about the BRICS bank is real or not. This is such a good and timely article we will put up a separate post later tonight for a more detailed look at it. Thank you to the blog reader who sent the link to us!

Hindustan Times: Indian Prime Minister Modi to "Seek Reforms" at BRICS Summit

We talk a lot about Russia and China as leaders of the BRICS bloc of nations. But India is also a large and growing economy. The Hindustan Times runs this article leading up to the BRICS summit next week. The article mentions the coming BRICS bank, but we can't help but notice something else the article mentions (see underlined below).

This is a pretty straight forward article, but we will list a few quotes and then add a comment below that.

"Prime Minister Narendra Modi will leave from New Delhi on Sunday for Brazil to attend the five-nation summit of BRICS nations on July 14 and 15 which is expected to finalise the setting up of a development bank and seek reforms of the United Nations and international financial organisations."

"The sixth summit of BRICS, which will follow up on the decisions of the Durban meeting last year, will provide the prime minister his first opportunity at meeting world leaders, including President Xi Jinping of China and Vladimir Putin of Russia, and discuss bilateral issues."

"BRICS accounts for more than a quarter of the world's land mass, 40% of its population and a combined GDP of $24 trillion.

Officials say that India will be hoping for an endorsement of the need for UN Security Council reforms and also those of the Bretton Woods institutions like the World Bank and IMF.

The BRICS Development Bank is expected to take further shape with a decision to concretise its corpus at $100 billion, about which there was a broad agreement in Durban.

Discussions are on about the contribution from each member state and where to locate its headquarters -- whether Shanghai or New Delhi.

It will be a development bank which will give concessional credit to members of BRICS and other developing countries."

"On July 16, the BRICS leaders will move to the Brazilian capital, Brasilia, where they will meet leaders of South America, who have been invited by the hosts on the lines of Zuma inviting African leaders to Durban.

The Prime Minister will get an opportunity to engage with the Latin American region through meeting the leaders of South America, including heads of state and government from countries like Argentina, Bolivia, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela."

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My added comments;

Here we get a glimpse of the upcoming summit from the Indian point of view. A couple of things to note in the article are:

-here again we see emphasis on getting "reforms at the UN, World Bank, and the IMF. Not abandoning them yet. India hopes to see a BRICS endorsement to get reforms at these institutions.

-we see in this article that BRICS leaders are reaching out to other South American nations to improve ties. We can assume the intent is for the new BRICS bank to gain prestige and influence in its efforts to become an alternative to the World Bank and the IMF. Again, success will put pressure on the IMF and World Bank to make changes the BRICS want while building up their own new system.

-BRICS have 40% of the world population and a combined $24 Trillion in GDP. This is a statistic they mention in virtually every media article to remind the West that they are to be taken seroiusly. It is kind of silly to talk about a "global monetary system" if 40% of the world is not included in it (drops out of the present system).

-One other note. This article (in an Indian publication) mentions New Delhi as possible home to the new BRICS bank, but Russia has already leaked that it will be in Shaghai. 

Putin, Russia make News ahead of the BRICS Summit

With the BRICS Summit just a few days away we have two interesting headlines in the BRICS Post. Both are generated out of Russia. If these articles are any indication it looks like Russia will try to take maximum advantage of media attention to both promote the BRICS as an alternative to the US/West and get in a few shots at the US as well. 

First we have this announcement from a Kremlin official that the BRICS bank will headquarter in China (in Shanghai). Here some quotes from that article first:

"The much awaited BRICS bank will be headquartered in Shanghai, Kremlin aide Yury Ushakov said in Moscow on Thursday."

"The location of the Bank has already been recorded in the official documents said Ushakov."

“Thus, the basis for the macroeconomic coordination of the five states will be laid. The new institutions will allow enforcing the global finance system, which is particularly important amid the IMF reform that reached a deadlock,” said Ushakov.

"The five founding members of the new Bank will retain controlling interest should any new members be admitted and the BRICS share will never dip below 55 per cent."

"Noted columnist and Russia expert Mark Adomanis says the BRICS Bank is likely to suffer significant growing pains but “the simple fact of its creation demonstrates the shockingly rapid pace of change of the past decade”.

“Ten years ago the creation of such a bank would have been greeted with open derision and laughter in Washington, London, Paris, and other Western capitals. They’re certainly not laughing anymore,” writes Adomanis.

Next we have this article quoting Russian President Putin on future expansion plans for the BRICS bank. Here are some quotes from that article:

"Russian President Vladimir Putin on Thursday said the expansion of BRICS to include newer members is an issue likely to be raised in the future as more and more countries queue up for membership in the powerful bloc of emerging economies."

"Ahead of the 6th BRICS Summit, Putin lauded the growing “political influence” of Brazil in the international community.

Moscow, Putin said, supports Brazil “as a deserving and strong candidate for a permanent seat on the UN Security Council.

Latin American nations, including Brazil, were angered by revelations in Brazil’s O Globonewspaper earlier that the US NSA snooped on oil and energy firms in Brazil and intercepted calls and emails of Brazilian President Dilma Rousseff.

Rousseff had subsequently canceled a state visit to the US. Brazil then co-drafted the “right to privacy” resolution with Germany, which has been passed by the  UN rights committee.

Putin on Thursday said the current cyber-espionage narrative “not only amounts to overt hypocrisy in relationships between allies and partners, but also a direct violation of the state’s sovereignty, an infringement on human rights and an invasion of privacy”.

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my comments on both articles: In just two short articles there is a quite a bit for us to consider. I will list the bullet points I take away from these two articles.

From the first article:

-Russia leaks news that the new BRICS bank will be in China. Does anyone doubt that these two countries are solidly behind each other in the new emerging alliance?

-The Kremlin official makes it clear this new BRICS bank is needed for "enforcing the global finance system" and this is important because "the IMF has reached a deadlock". Notice this always comes back to the IMF not approving the 2010 reforms.

-the article quotes a Russian expert making a statement we could reasonably call a message to the West. Washington, London, Paris, and other Western Capitals "aren't laughing anymore". This statement gives you an idea of how these countries think they have been treated by the West. They were "laughed at" (indicating viewed as inferior), but not anymore.

From the second article: 

-Putin seems to use the pre summit media attention to send some more messages to the West such as:

-the BRICS are here to stay and lots of other nations are interested in joining with us

-Brazil deserves a seat on the UN Security Council. Does this sound like a guy ready to walk away from the UN, IMF, etc?  Or a guy who wants to pressure them into doing more of what he wants?

-jumps at the opportunity to poke a stick at the US (NSA) for spying on Brazil. This is sore spot all around the world right now and Putin uses this opportunity to call out the US for "hypocrisy", "infringement of human rights", and "invasion of privacy" (remember Snowden lives in Russia these days)

Concluding commments: Well, the summit hasn't even started yet and we see Russia taking the media lead as we anticipated. If these two articles are any indication, it appears Russia will use this summit both to try and boost the BRICS image and to take some shots at the US and the West. 

But please notice that the quoted comments DO NOT seem to indicate they are giving up on the UN, the IMF, etc.  Instead, they seem to indicate a desire to create pressure on those institutions to change in ways the BRICS prefer. 

Again, I can't close the door completely on the idea that the BRICS hope to use this new alliance to gain leverage at the existing global institutions as well as have their own system up and running as "Plan B" if they eventually give up on the present system. From their perspective, there is no downside to forming this alliance.

BRICS Summit Coming Up - Here's a Primer on the BRICS

The BRICS summit will take place next week in Brazil. Because this bloc of nations now represents a significant portion of the world's GDP, trade, and population, it has been gaining more attention. There are two major projects underway that will move forward next week. One is the Continent Reserves Fund which will begin with $100 billion funding. The other is the BRICS Development Bank which will begin with capitalization of $50 Billion. 

For readers who want to get a basic idea of who the BRICS nations are and what there goals are, here is a good primer to read.

Below are a few excerpts from this article with some key parts in bold. Then a few followup comments.

"The acronym "BRICs" was initially formulated in 2001 by economist Jim O'Neill, of Goldman Sachs, in a report on growth prospects for the economies of Brazil, Russia, India and China – which together represented a significant share of the world's production and population."

"As of the First Summit, held in Yekaterinburg in 2009, the depth and scope of the dialogue among the Members of BRICs – which became BRICS in 2011 with the inclusion of South Africa – was further enhanced. More than an acronym that identified countries emerging in the international economic order, BRICS became a new and promising political-diplomatic entity, far beyond the original concept tailored for the financial markets."

"BRICS has evolved in an incremental manner, in areas of consensus amongst its members, strengthening its two main pillars: (i) coordination in multilateral fora, with a focus on economic and political governance; and (ii) cooperation between members."

"Regarding the first pillar, the efforts towards reforming the structures of global governance, especially in the economic and financial fields – Financial G-20, International Monetary Fund, World Bank – receive a special emphasis, as well the reform of political institutions, such as the United Nations."

"Negotiations are at an advanced stage for the creation of the New Development Bank, aimed at financing infrastructure and sustainable development projects in the BRICS and other developing countries. When created, the new institution will count initially with a subscribed capital of US$ 50 billion."

"Likewise, the BRICS will soon conclude the agreement that creates the Contingent Reserves Arrangement (CRA), a fund with an initial sum of US$ 100 billion, which the BRICS countries will be able to use to forestall short-term liquidity pressures."

"In view of BRICS' informal nature, the role of Secretariat is played by its pro tempore presidency. BRICS is cautiously and incrementally being consolidated, gradually moving forward the institution-building process."

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We see from the above that a big reason for the BRICS nations to work together is to try and "reform the structures of global governance" at the G20, the IMF, the World Bank, and the UN. The BRICS nations view these organizations as US and Western dominated. They think they deserve more influence and power due to their growing contribution to global GDP.

Reform at these institutions has mostly stalled however due to resistance from the US and also somewhat from the EU. In the US there is quite a bit of pressure on Congress to scale back US funding due to the large US debt and what some see as a questionable use of US taxpayer funds. With the Republicans holding a majority in the House (and probably about to make gains in the Senate) there is not much political will to ramp up funding to global institutions or approve reforms that would increase prestige for Russia and China. The ongoing situation in the Ukraine has made relations between the US and Russia even worse.

So all eyes will be on the upcoming BRICS to see how they treat Russia and to see how they promote their agenda. Will they just meet and talk about how they will "gradually move forward the institution-bulding process"  without a lot of anti US rhetoric? Or will Russia use this summit to try and send a global message that the US system is in decline and the US dollar system is coming to an end? This is the message coming out of Russia lately through their media outlets like Voice of Russia and Russia Today.

We suspect that if any message sending is done, it will be done by Russia. China and the other BRIC nations prefer to avoid conflict and headlines. The Chinese don't like to do a lot of talking, but they do steadily move forward towards their objectives. It is very clear from recent news that China is solidly behind Russia and the other BRIC nations are either silent or quietly supportive of Russia.

The BRICS are giving every indication that they are serious about just moving away from the existing global financial institutions and starting up their own version. But they do admit the process will take time and they talk mostly in terms of years into the future (like 10-20 years).

We think the thing to watch over time is whether or not this split becomes real and permanent or if what we are seeing are just moves in the global financial chess game. Moves designed to pressure the US into accepting IMF reforms and a global monetary system less US dollar based. Note this quote from this article about the summit in Russia Today:

"BRICS leaders are also expected to discuss IMF reform that would give the emerging economies a louder say in the decision making process in the fund."

It will be interesting to see if the western media pays much attention to the summit. It is too early to tell how this will play out, but we might get some hints next week. We'll cover it here in depth and see what unfolds. If there are any fireworks, expect Russia to be involved. 

We think the BRICS will surely impact major monetary system change one way or another over time.