The BRICS Bank aims to reduce dollar debt by expanding lending in local currency

  • The BRICS New Development Bank has begun to extend more loans in member currencies.
  • Bank President Dilma Rousseff told the Financial Times that 30 percent of lending would be in local tenders.
  • In August, it sold its first South African rand bond, and plans to sell Indian rupee bonds in October.

The Development Bank formed and led by the economic alliance of the BRICS group is close to getting rid of the dollar from the point of view of debt, with plans to limit dollar-denominated lending.

The Shanghai-based New Development Bank is focusing instead on using BRICS currencies, like bids in South Africa, Brazil and India.

“We expect to lend between $8 and $10 billion this year,” said Dilma Rousseff, president of the New Development Bank. The Financial Times“Our goal is to get about 30% of everything we lend…in local currency.”

The New Development Bank has already issued its first South African rand bond in mid-August, which attracted 2.67 billion rand from bids. Reuters mentioned. More recently, the bank announced plans to issue a bond in Indian rupees in October, although it did not submit anything Details on the size of the program.

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

And while the BRICS group has recently begun to portray itself as a counterweight to the West, its members have urged the New Development Bank to focus more on the use of local currencies.

By moving away from the dollar, Rousseff told the Financial Times that member states are free from risks associated with US exchange rates and monetary policy. On the other hand, borrowing from the New Development Bank comes without strings attached, as is often the case with institutions such as the International Monetary Fund.

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

Her remarks come as BRICS leaders meet for the bloc’s 15th annual summit in Johannesburg, South Africa. Since Russia’s invasion of Ukraine, the bloc has become more vocal about moving away from the dollar, even proposing to form its own currency, though analysts are skeptical.

But despite the rhetoric of de-dollarization, the NDB’s past lending practices relied heavily on the US currency, a factor that contributed to the financial problems of the recent past.

Because of the bank’s ties to Russia, the National Development Bank suffered a downgrade by Fitch Ratings last year, while Western investors became less keen to provide the bank with dollars. Since two-thirds of its borrowing was denominated in dollars, the loss of this funding meant that servicing NDB debt became significantly more expensive.

Apart from BRICS, the bank’s members include Egypt, Bangladesh and the United Arab Emirates. Rousseff said the bank had received 15 new membership applications, and was processing 4 or 5 of them.

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