BRICS bank in China expands local currency lending to de-dollarize debt

The BRICS New Development Bank (NDB) is shifting towards lending in member currencies, a move that aligns with the bloc's recent emphasis on de-dollarization. The NDB, led by president Dilma Rousseff, aims to reduce its reliance on dollar-denominated lending and instead focus on using BRICS currencies such as the South African rand, Brazilian real, and Indian rupee. Rousseff stated that the bank expects to lend between $8 billion to $10 billion this year, with the goal of having approximately 30% of its lending in local currencies.

To achieve this, the NDB has already issued its first South African rand bond in August, which attracted significant bids. The bank has also announced plans to sell Indian rupee bonds in October, although details on the size of the program have not been provided. The NDB was established in 2015 by the BRICS bloc, consisting of Brazil, Russia, India, China, and South Africa, as an alternative to Western-led financial institutions. It has already lent $33 billion for development projects.

Rousseff highlighted that using local currencies reduces the risks associated with exchange rates and US monetary policy. Additionally, borrowing from the NDB does not come with the conditionality often imposed by institutions like the International Monetary Fund. The move towards local currencies reflects the BRICS bloc's desire to establish itself as a counterweight to the West. However, the feasibility of creating a common BRICS currency remains uncertain.

Despite the rhetoric of de-dollarization, the NDB has historically relied heavily on the US dollar, which has contributed to financial difficulties. The bank experienced a credit downgrade from Fitch Ratings last year and faced challenges in attracting Western investors due to its ties to Russia. As two-thirds of its borrowing were in dollars, the loss of this funding has significantly increased the cost of servicing NDB's debt.

In addition to the BRICS members, the NDB includes Egypt, Bangladesh, and the United Arab Emirates as members. The bank has received 15 new membership applications and is currently considering four or five of them. As the BRICS leaders convene for their annual summit, the focus on lending in member currencies is seen as a step towards reducing reliance on the US dollar and establishing a more independent financial system.


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