China will contribute $41 billion, while India will chip in with $18 billion

The BRICS (Brazil, Russia, India, China and South Africa) group on Thursday made progress in the creation of a $100-billion Currency Reserve Fund (CRF) by announcing individual contribution.

China will contribute $41 billion, while Brazil, Russia and India will chip in with $18 billion each. South Africa, the smallest economy, will commit only $5 billion to the CRF.

Prime Minister Manmohan Singh said the development was significant as it came at a time when emerging market currencies were very vulnerable in recent months on account of global factors like withdrawal of the easy money policy by the U.S., whose economy had shown signs of recovery.

The fund would eventually allow the five nations to access the fund to deal with short-term volatility in their capital flows, which might negatively impact their currencies. The idea of such a fund found traction in the last BRICS summit in Durban, South Africa, earlier this year.

The BRICS leaders, meeting on the sidelines of the G-20 meeting on Thursday, said in a joint statement: “In light of the increase in financial market and capital flow volatility during recent months, the BRICS leaders reiterated their concerns over the unintended negative spillovers of unconventional monetary policies of certain developed economies. They emphasised that the eventual normalisation of monetary policies needs to be effectively and carefully calibrated and clearly communicated.”

This implies that the BRICS nations would want the U.S. to communicate to the emerging economies how its monetary strategy will pan out over the next year or so. It is not known how the U.S. would respond to the concerns expressed by the BRICS economies. There have been news reports, citing U.S. officials, suggesting that Russia and China may not be in full agreement with India’s position that the U.S. unconventional monetary policy needs to be calibrated in the future. However, Foreign Secretary Sujata Singh said the BRICS position, as reflected in the joint communiqué, was made in unison, especially with regard to the “spillover effects of unconventional monetary policies of developed countries.”

In fact, the BRICS leaders also expressed concern at the stalling of the International Monetary Fund (IMF) reform process. They recalled the urgent need to complete the next IMF quota review by January next to “ensure the Fund’s credibility, legitimacy and effectiveness.”

The Foreign Secretary said the plan for creating a BRICS Development Bank with an initial corpus of $50 billion would progress smoothly in the months to come. “We can’t give any specific timeline, but the BRICS leaders are committed to working out the details of the bank.”