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China-based BRICS bank aims to de-dollarize debt by expanding local currency lending

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A worker arranges a signboard of the 15th BRICS summit outside the Sandton Convention Center in Johannesburg, South Africa, Aug. 17, 2023. The 15th BRICS summit is to be held in Johannesburg, South Africa, on Aug. 22-24.

Zhang Yudong/Xinhua/Getty Images

The BRICS New Development Bank is starting to lend more in member currencies.
The bank’s president, Dilma Rousseff, told The Financial Times 30% of lending will be in local tenders.
In August, it sold its first South African rand bond, and plans to sell Indian rupee bonds in October.

A development bank formed and led by the BRICS economic coalition is approaching de-dollarization from a debt angle, with plans to reduce dollar-denominated lending.

The Shanghai-based New Development Bank is instead focusing on the use of BRICS currencies, such as South African, Brazilian, and Indian tenders. 

“We expect to lend between $8 billion—$10 billion this year,” NDB President Dilma Rousseff told The Financial Times.”Our aim is to reach about 30%of everything we lend . . . in local currency.”

Already, NDB has issued its first South African rand bond in mid-August, which attracted 2.67 billion rand of bids, Reuters reported. More recently, the bank announced plans for an Indian rupee bond in October, though provided no specifics on the program’s size.

The bank is the creation of the BRICS bloc — Brazil, Russia, India, China, and South Africa. Founded in 2015, it was formed as an alternative to the Western-led financial institutions, and has already lent $33 billion for development projects.

As BRICS has recently taken to branding itself as a counterweight to the West, its members have pushed for NDB to focus more on the use of local currencies.

By stepping away from the greenback, Rousseff told FT that member countries are free from the risks associated with exchange rates and US monetary policy. Meanwhile, borrowing from the NDB comes with no conditionality, as is often the case with institutions such as the International Monetary Fund.

“Local currencies are not alternatives to the dollar,” she said. “They’re alternatives to a system.”

Her comments come as BRICS leaders meet for the bloc’s 15th annual summit in Johannesburg, South Africa. Since the Russian invasion of Ukraine, the bloc has grown more vocal about turning away from the dollar, even proposing the formation of its own currency, though analysts doubt this.

But despite the de-dollarization rhetoric, NDB’s past lending practices have been highly dependent on the greenback, a factor that has contributed to financial trouble in the recent past. 

Given the lender’s ties to Russia, NDB suffered a Fitch Ratings credit downgrade last year, while Western investors grew less keen on supplying the bank with dollars. As two-thirds of its borrowing were dollar-denominated, the loss of this funding has meant that NDB’s debt servicing has grown substantially more expensive.

Apart from the BRICS, the bank’s members include Egypt, Bangladesh, and the United Arab Emirates. Rousseff said the bank has received 15 new membership applications, and is considering 4 or 5.

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A worker arranges a signboard of the 15th BRICS summit outside the Sandton Convention Center in Johannesburg, South Africa, Aug. 17, 2023. The 15th BRICS summit is to be held in Johannesburg, South Africa, on Aug. 22-24.

Zhang Yudong/Xinhua/Getty Images

The BRICS New Development Bank is starting to lend more in member currencies.
The bank’s president, Dilma Rousseff, told The Financial Times 30% of lending will be in local tenders.
In August, it sold its first South African rand bond, and plans to sell Indian rupee bonds in October.

A development bank formed and led by the BRICS economic coalition is approaching de-dollarization from a debt angle, with plans to reduce dollar-denominated lending.

The Shanghai-based New Development Bank is instead focusing on the use of BRICS currencies, such as South African, Brazilian, and Indian tenders. 

“We expect to lend between $8 billion—$10 billion this year,” NDB President Dilma Rousseff told The Financial Times.”Our aim is to reach about 30%of everything we lend . . . in local currency.”

Already, NDB has issued its first South African rand bond in mid-August, which attracted 2.67 billion rand of bids, Reuters reported. More recently, the bank announced plans for an Indian rupee bond in October, though provided no specifics on the program’s size.

The bank is the creation of the BRICS bloc — Brazil, Russia, India, China, and South Africa. Founded in 2015, it was formed as an alternative to the Western-led financial institutions, and has already lent $33 billion for development projects.

As BRICS has recently taken to branding itself as a counterweight to the West, its members have pushed for NDB to focus more on the use of local currencies.

By stepping away from the greenback, Rousseff told FT that member countries are free from the risks associated with exchange rates and US monetary policy. Meanwhile, borrowing from the NDB comes with no conditionality, as is often the case with institutions such as the International Monetary Fund.

“Local currencies are not alternatives to the dollar,” she said. “They’re alternatives to a system.”

Her comments come as BRICS leaders meet for the bloc’s 15th annual summit in Johannesburg, South Africa. Since the Russian invasion of Ukraine, the bloc has grown more vocal about turning away from the dollar, even proposing the formation of its own currency, though analysts doubt this.

But despite the de-dollarization rhetoric, NDB’s past lending practices have been highly dependent on the greenback, a factor that has contributed to financial trouble in the recent past. 

Given the lender’s ties to Russia, NDB suffered a Fitch Ratings credit downgrade last year, while Western investors grew less keen on supplying the bank with dollars. As two-thirds of its borrowing were dollar-denominated, the loss of this funding has meant that NDB’s debt servicing has grown substantially more expensive.

Apart from the BRICS, the bank’s members include Egypt, Bangladesh, and the United Arab Emirates. Rousseff said the bank has received 15 new membership applications, and is considering 4 or 5.

Read the original article on Business Insider
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