Foreign Exchange and the BRICS

BRICS, the pool of $100 billion reserves, has been established by Brazil, Russia, China South Africa and India. These are the fastest growing and major emerging economies of the world. It has been stated by the founders of BRICS that its main purpose is to safe their economies from financial shocks. However the establishment of BRICS has certain implications for the world economy. It will provide the funds on the requests of each country when required. There are two sub-structures of this project as reported by economists. One substructure is the $100 billion stabilization fund and the second substructure will be a development bank with the initial capital of $50 billion. The $100 billion stabilization fund was largely contributed by China which contributed $41 billion. $18 billion was contributed by India, Brazil and Russia each and the contribution of South Africa was $5 billion.

It is the first substructure that poses greater implications for forex trade for the time being as the development bank to be created under this project is yet to be announced. It can be regarded as a challenge for the IMF because the countries involved in this project are expected to be ranked among the top ten economies of the world. As a result, they will play key role in market economies and foreign trade all around the globe. The key challenges and implications will start emerging later this year as the BRICS project would be fully functional by that time.

The comparison of total foreign reserves maintained by IMF and BRICS can help us understand the future prospects of this development. IMF holds $369.05 billion as compared to the newly established BRICS’s foreign reserves of $100 billion. However, the number of donor countries for IMF is very large as compared to only five countries as the contributors to BRICS. If some nations have decided to develop a supranational institution analogous to the IMF in function, their decision seems logical keeping in view the recent global financial crisis. Therefore, investment companies are not taking it as a threat for the forex trade in near future. Some also say that IMF has grown into an unmanageable organization due to lack of reforms. Its recapitalization has been blocked by the USA just to avoid losing its financial and political influence over the developing countries.

While IMF delays payments for investment and infrastructure project, the BRICS will serve as a rival to it and would bring development to new heights. The extent to which BRICS proves a success will provide a better estimation of its impacts on foreign exchange and investments made in this market. However, its impacts on international development and economy are quite evident. The experts in foreign exchange trade can provide expert advice on the impacts of BRICS and can assess its ultimate outcomes for the forex trade. It is expected that it may bring value and benefits for international trade due to enhanced competition between the two international institutes for participant countries.