BRICS to commit $100 bn to forex fund, completion a way off
China, holder of the world's largest foreign exchange reserves, will contribute the lion's share of the currency pool. But it will be much smaller than the USD 240 billion originally envisaged.
The BRICS group of emerging economies will contribute USD 100 billion to a fighting fund to steady currency markets destabilised by an expected pullback of US monetary stimulus, China and Russia said on Thursday.
China, holder of the world's largest foreign exchange reserves, will contribute the lion's share of the currency pool. But it will be much smaller than the USD 240 billion originally envisaged and officials said it would not be functional for some time yet.
Cheap dollars that fueled a boom in Brazil, Russia, India, China and South Africa over the past decade have turned tail since Ben Bernanke, chairman of the Federal Reserve, warned in May of a 'taper' in the US bond-buying scheme.
"The scale of the reserve arrangement will be USD 100 billion and China will take the lion's share of this," China's Vice Finance Minister Zhu Guangyao told a briefing at the Group of 20 summit in St. Petersburg, Russia.
Both Zhu and Russian Deputy Finance Minister Sergei Storchak said details still needed to be worked out, suggesting that - beyond the announcement - much more work would need to be done on the reserve facility.
A joint BRICS development bank, with capital of up to USD 50 billion, is also still months away from realisation amid disagreements over burden sharing and where it should be based.
Russian President Vladimir Putin was expected to announce the currency pool's size at a meeting of BRICS leaders, before the full G20 gathers later on Thursday to discuss the state of the world economy.
"We have asked not to create unnecessary expectations," Storchak told Reuters regarding the currency pool. "Politically, the countries are ready, but technically they are not.
"The total is known, but I don't even know how to come to that," Storchak said.
Last year's original initiative foresaw creating a pool of central bank funds available to BRICS facing balance of payments difficulties. There was also a push to create an IMF-style credit line to insure against external shocks.
The Fed is widely expected this month to take its first steps to reduce the extraordinary monetary stimulus, with potentially huge implications for a global financial system where the US dollar accounts for 62 percent of reserve assets.
Solidarity only goes so far
The emerging nation facing the biggest financial shock, India, received scant sympathy from China and Russia as both called for policy action to tackle external deficits.
"We see the temporary difficulties of some BRICS countries, mainly as difficulties in terms of international balance of payments," said Zhu.
"The policy options in response to such ... difficulties include increasing interest rates or devaluing currencies."
It increasingly appears that India's announcement last Friday that it was liaising with other emerging countries on a plan to coordinate intervention in offshore currency markets had few if any other backers.
Asked about the Indian statement, South African Finance Minister Pravin Gordhan told Reuters on Tuesday: "We don't know what the proposal is ... This is India's initiative to resolve India's issues."
Nonetheless, Indian officials said they were counting on the strong support of the G20 to provide reassurance over the winding down of the Fed's quantitative easing programme as the US economy picks up.
Arvind Mayaram, economic affairs secretary at India's ministry of finance said: "I think there should be a very strong statement on the G20 having a consensus on the concern about the spillover effects.
"I think if a strong statement is made on these two points, it will have a major calming impact on the markets in the emerging economies," he told reporters ahead of the summit.
Storchak said the communique's wording on spillover effects would be the same as agreed by G20 finance ministers in July, when they said future changes to monetary policy should be "carefully calibrated and clearly communicated".