BRICS to commit US$100bil to forex fund

by **Cals** Fri 06 Sep 2013, 08:49

Published: Friday September 6, 2013 MYT 12:00:00 AM
Updated: Friday September 6, 2013 MYT 7:46:02 AM
BRICS to commit US$100bil to forex fund

ST PETERSBURG: The BRICS group of emerging economies will contribute US$100bil to a fighting fund to steady currency markets destabilised by an expected pullback of US monetary stimulus, China and Russia said.
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 US$240bil originally envisaged and officials said it would not be functional for some time yet.
Cheap dollars that fuelled a boom in Brazil, Russia, India, China and South Africa (BRICS) over the past decade have turned tail since Federal Reserve chairman Ben Bernanke warned in May of a “taper” in the US bond-buying scheme.
“The scale of the reserve arrangement will be US$100bil 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 (G-20) summit in St Petersburg, Russia.
Both Zhu and Russian Deputy Finance Minister Sergei Storchak said that 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 US$50bil, 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 G-20 gathers later yesterday to discuss the state of the world economy.
“We have asked not to create unnecessary expectations,” Storchak told Reutersregarding the currency pool. “Politically, the countries are ready, but technically they are not.”
“The total is known (US$100bil), but I don’t even know how to come to that,” he 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 International Monetary Fund (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% of reserve assets.
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.” — Reuters