The BRICS Bank — An Alternative That Wasn’t

UPSC Syllabus: Gs Paper 2- Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Introduction

BRICS created the New Development Bank (NDB) and Contingent Reserve Arrangement (CRA) to provide developing countries with alternatives to the World Bank, IMF and dollar-dominated financial system. However, after a decade, these institutions remain much smaller and closely linked to the existing financial architecture. BRICS has therefore moved towards building a parallel financial system and greater multipolarity, rather than replacing the Bretton Woods system (global financial system centred on the World Bank and IMF).

Background: Need for an Alternative Financial Architecture

1. Western dominance: The post-Second World War financial system remains centred on the World Bank and IMF, where developing countries have limited influence over major decisions.
2. Global South’s demand: BRICS seeks greater representation because of concerns over IMF conditionality, dollar dominance and Western influence in global financial decision-making.
3. Creation of NDB: Established in 2015, the NDB was intended to provide development finance with equal governance, fewer political conditions and greater use of local currencies.
4. Creation of CRA: The $100-billion Contingent Reserve Arrangement was created in 2015 to provide members with financial support during crises without depending entirely on the IMF.
5. De-dollarisation objective: BRICS also sought to increase local-currency trade and financing to reduce exposure to U.S. monetary policy and exchange-rate volatility.

Development So Far: Growth of the BRICS Financial Architecture

1. Expansion of NDB: The NDB has grown from five founding members to eleven, reflecting wider developing-country interest in alternative development financing.
2. Rising project financing: By the end of 2025, NDB approvals reached about $42.9 billion across 139 projects, covering infrastructure and social-development needs.
3. Development projects: NDB financing includes the Delhi-Ghaziabad-Meerut RRTS, Chinese offshore wind power, Brazilian water services and Durban port modernisation.
4. Alternative governance: The five founding members have equal voting power, giving the NDB a more balanced governance structure than institutions where voting power is linked more closely to economic weight.
5. Local-currency lending: Nearly one-quarter of NDB funding is now in local currencies, including the Chinese yuan, Indian rupee and South African rand.
6. Broader currency diversification: Around 65% of intra-BRICS trade is reportedly conducted in local currencies, while some China-related energy transactions have also shifted towards the renminbi.

Present Status: Complement, Not Replacement

1. Limited financial scale: The NDB’s $42.9-billion project approvals remain far below the scale of the World Bank, which commits roughly $100 billion annually, showing that the NDB is not yet a comparable financing institution.
2. Smaller capital base: The NDB has an authorised capital of $100 billion, compared with the much larger capital resources associated with the World Bank and IMF.
3. Complementary relationship: The NDB itself describes cooperation with other multilateral development banks, including co-financing opportunities with the World Bank Group, showing that it currently works alongside existing institutions.
4. Continued dollar financing: The NDB continues to issue U.S.-dollar bonds alongside local-currency bonds, showing that dollar financing remains an important part of its funding model.
5. Western market dependence: The NDB accesses international capital markets and its bonds carry ratings from agencies such as S&P and Fitch, keeping its financing connected to the wider global financial system.
6. Russia case: In March 2022, the NDB put new transactions in Russia on hold following the restrictions imposed after the invasion of Ukraine, showing the importance of maintaining international compliance and financial access.

Limitations: Why a Genuine Alternative Has Not Emerged

1. Structural dependence: The NDB follows much of the same financial model as the World Bank, raising funds through international capital markets and remaining part of the existing global financial architecture rather than creating a separate system.
2. CRA’s weak autonomy: The $100-billion CRA has never been activated, and members seeking more than 30% of their allocation must first enter an IMF programme, directly limiting its independence.
3. Institutional weakness of CRA: The CRA has no permanent staff, independent surveillance capacity or research wing, reducing its ability to operate as a full-fledged alternative to the IMF during financial crises.
4. Divergent national interests: BRICS members do not share one position on de-dollarisation; India rejects a common BRICS currency, South Africa considers it risky, while China favours gradual internationalisation of the yuan.
5. Limited collective response: When the U.S. threatened a 10% tariff surcharge against countries aligning with “anti-American” BRICS policies, the bloc did not give a collective response, showing the limits of its financial coordination.
6. Reform rather than replacement: The 2024 Kazan and 2025 Rio declarations called for a more adequately resourced, quota-based IMF, indicating that BRICS still seeks a greater role within the existing system rather than its complete replacement.
7. Persistent Western financial dominance: The U.S. holds 16.49% of IMF voting rights, and the 85% supermajority requirement gives Washington an effective veto over major IMF decisions, which BRICS has not been able to overcome.
8. Rhetoric–reality gap: BRICS speaks of reducing Western financial dominance, yet its institutions continue to use dollar financing, Western credit ratings and IMF-linked mechanisms, making the project more complementary than transformative.

Way Forward

1. Expand local-currency financing: BRICS can increase local-currency lending and settlements to gradually reduce dependence on dollar financing and exchange-rate risks.
2. Develop alternative payment systems: BRICS should work towards reliable alternatives to SWIFT to support cross-border transactions and reduce dependence on Western-controlled financial infrastructure.
3. Create BRICS credit-rating agencies: A credible BRICS-based credit-rating system can reduce dependence on Western agencies and help attract investment to developing economies.
4. Strengthen the CRA: BRICS should give the Contingent Reserve Arrangement stronger independent surveillance, research and crisis-response capacity so it can function with less IMF dependence.
5. Increase NDB’s scale: The NDB should expand its project financing and local-currency portfolio to make its role more significant in development financing.
6. Pursue gradual de-dollarisation: BRICS should focus on gradual financial diversification, as members have different economic interests and do not seek an abrupt challenge to the dollar.
7. Balance national and collective interests: BRICS members should give greater priority to common financial objectives while managing their individual economic and geopolitical interests.
8. Build supply-chain resilience: BRICS should cooperate on critical minerals, rare earths and resilient supply chains to reduce vulnerabilities from concentrated global supplies.

Conclusion

BRICS has not replaced the Bretton Woods system, as the NDB and CRA remain connected to existing financial markets and institutions. However, growing local-currency financing, alternative payment mechanisms and stronger development cooperation can gradually increase the financial autonomy of the Global South. BRICS’ realistic path is therefore to build a parallel and more multipolar financial architecture, rather than abruptly dismantling the existing order.

Question for practice:

Evaluate whether the BRICS Bank has emerged as a genuine alternative to the Bretton Woods system.

Source: The Hindu