15 July 2014
1. We, the leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, met in Fortaleza, Brazil, on 15 July 2014 at the Sixth BRICS Summit…
5.The Sixth Summit takes place at a crucial juncture, as the international community assesses how to address the challenges of strong economic recovery from the global financial crises, sustainable development, including climate change, while also formulating
At the same time, we are confronted with persistent political instability and conflict in various global hotspots and non-conventional emerging threats. On the other hand, international governance structures designed within a different power configuration show increasingly evident signs of
- losing legitimacy and effectiveness, as transitional and ad hoc arrangements become increasingly prevalent,
- often at the expense of multilateralism.
We believe the BRICS are an important force for incremental change and reform of current institutions towards more representative and equitable governance, capable of generating more inclusive global growth and fostering a stable, peaceful and prosperous world.
6. During the first cycle of BRICS Summits, collectively our economies have consolidated their
- position as the main engines for sustaining the pace of the international economy as it recovers from the recent economic and financial global crisis. The BRICS continue to contribute significantly to global growth and to the reduction of poverty in our own and other countries. Our economic growth and social inclusion policies have helped
- to stabilize global economy,
- to foster the creation of jobs,
- to reduce poverty, and to
- combat inequality, thus contributing to the achievement of the Millennium Development Goals.
In this new cycle, besides its contribution in fostering strong, sustainable and balanced growth, BRICS will continue to play a significant role in promoting social development and in contributing to define the international agenda in this area, building on its experience in addressing the challenges of poverty and inequality…
8. The world economy has strengthened, with signs of improvement in some advanced economies. Significant downside risks to this recovery remain, however.
- Unemployment and debt levels are worryingly high and growth remains weak in many advanced economies. Emerging market economies and developing countries (EMDCs) continue to contribute significantly to global growth and will do so in the years to come. Even as the global economy strengthens, monetary policy settings in
- some advanced economies may bring renewed stress and volatility to financial markets and
- changes in monetary stance need to be carefully calibrated and clearly communicated
in order to minimize negative spillovers.
9. Strong macroeconomic frameworks, well regulated financial markets and robust levels of reserves have allowed EMDCs in general, and the BRICS in particular, to better deal with the risks and spillovers presented by the challenging economic conditions in the last few years. Nevertheless, further macroeconomic coordination amongst all major economies, in particular in the G20, remains a critical factor for strengthening the prospects for a vigorous and sustainable recovery worldwide…
The BRICS stand ready to contribute to the G20 goal of lifting our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years.
10… As a new round of BRICS Summits begins, we remain committed to deliver constructive responses to global economic and financial challenges and to serve as a strong voice for the promotion of sustainable development, inclusive growth, financial stability and of more representative international economic governance.
We will continue to pursue our fruitful coordination and to promote our development goals within the international economic system and financial architecture.
11. BRICS, as well as other EMDCs, continue to face significant financing constraints to address infrastructure gaps and sustainable development needs. With this in mind, we are pleased to announce the signing of the Agreement establishing the
, with the purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies…
12. The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members.The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India.The headquarters of the Bank shall be located in Shanghai.
13. We are pleased to announce the signing of theTreaty for the establishment of the
BRICS Contingent Reserve Arrangement (CRA)
with an initial size of US$ 100 billion. This arrangement will have
- a positive precautionary effect,
- help countries forestall short-term liquidity pressures,
- promote further BRICS cooperation,
- strengthen the global financial safety net and complement existing international arrangements… The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures…
17. We believe that sustainable development and economic growth will be facilitated by taxation of revenue generated in jurisdictions where economic activity takes place. We express our concern over the harmful impact of tax evasion, transnational fraud and aggressive tax planning on the world economy. We are aware of the challenges brought by aggressive tax avoidance and non-compliance practices…
18. We remain disappointed and seriously concernedwith the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process…must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy. The Fund must remain a quota-based institution…
21. We believe all countries should enjoy due rights, equal opportunities and fair participation in global economic, financial and trade affairs, recognizing that countries have different capacities and are at different levels of development.
We strive for an open world economy with efficient allocation of resources, free flow of goods, and fair and orderly competition to the benefit of all.
IMF’s Special Drawing Rights as a global reserve currency
Jul 25, 2014
It is symbolic that the recent BRICS summit in Fortaleza, Brazil, took place exactly seven decades after the Bretton Woods Conference that created the International Monetary Fund and the World Bank. The upshot of the BRICS meeting was the announcement of the
- New Development Bank, which will mobilize resources for infrastructure and sustainable development projects, and
- a Contingent Reserve Arrangement to provide liquidity through currency swaps.
The Bretton Woods Conference marked one of history’s greatest examples of international economic cooperation. And, while no one can say yet whether the BRICS’ initiatives will succeed, they represent a major challenge to the Bretton Woods institutions, which should respond. Rethinking the role of the US dollar in the international monetary system is a case in point.
One key feature of the Bretton Woods system was that countries would tie their exchange rates to the US dollar. While the system was effectively eliminated in 1971, the US dollar’s central role in the international monetary system has remained intact – a reality that many countries are increasingly unwilling to accept…
According to the Belgian economist Robert Triffin, an international monetary system based on a national currency is inherently unstable, owing to the resulting tensions among the inevitably divergent interests of the issuing country and the international system as a whole. Triffin issued his warning more than 50 years ago, but it has recently gained traction, as
- China’s rise has made the world increasingly disinclined to tolerate the instability caused by a dollar-denominated system. The solution, however, lies not in replacing the dollar with the renminbi, but in strengthening the role of the world’s only truly global currency: the IMF’sSpecial Drawing Rights.
Following the creation of SDRs in 1969, IMF members committed to make them “the principle reserve asset in the international monetary system,” as stated in the Articles of Agreement. But the peculiar way in which SDRs were adopted limited their usefulness.
For starters, the separation of the IMF’s SDR account from its general account made it impossible to use SDRs to finance IMF lending. Furthermore, though countries accrue interest on their holdings of SDRs, they have to pay interest on the allocations they receive. In other words, SDRs are both an asset and a liability, functioning like a guaranteed credit line for the holder – a sort of unconditional overdraft facility.
Nonetheless, SDRs have proved to be useful. After initial allocations in 1970-1972, more were issued to increase global liquidity during major international crises: in 1979-1981, in 1997, and, in particular, in 2009, when the largest issue – the equivalent of $250 billion – was made. While developed countries, including the US and the United Kingdom, have drawn on their allocations, the major users have been developing and, in particular, low-income countries. In fact, this is the only way in which developing countries (China aside) share in the creation of international money. Several estimates indicate that, given the additional demand for reserves, the world could absorb annual allocations of $200-300 billion or even more.
This has prompted many – including People’s Bank of China Governor Zhou Xiaochuan; the United Nations-backed Stiglitz Commission; the Palais-Royal Initiative, led by former IMF Managing Director Michel Camdessus; and the Triffin International Foundation – to call for changes to the international monetary system.
In 1979, the IMF economist Jacques Polak, who had been part of the Dutch delegation at the Bretton Woods conference, outlined a plan for doing just that. His recommendations include, first and foremost, making all of the IMF’s operations in SDRs, which would require ending the separation of the IMF’s SDR and general accounts. The simplest way to fulfill this vision would be to allocate
- SDRs as a full reserve asset, which countries could either use or deposit in their IMF accounts.
The IMF would use those deposits to finance its lending operations, rather than having to rely on quota allocations or “arrangements to borrow” from members. Other provisions could be added. To address developing countries’ high currency demands, while enhancing their role in the creation of international money, a formula could be created to give them a larger share in SDR allocations than they now receive…
Just as the Bretton Woods framework restored order to the global economy after WWII, a new monetary framework, underpinned by a truly international currency, could strengthen much-needed economic and financial stability. Everyone – even the US – would benefit from that.
José Antonio Ocampo, former United Nations Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia, is Professor and Member of the Committee on Global Thought at Columbia University.