With the emergence of the New Development Bank, formerly known as the BRICS Development Bank, and the AIIB (Asian Infrastructure Investment Bank), the world is increasingly becoming Bipolar, with China and India together growing as the ‘Eastern power Bloc’ challenging dominance of the Western powers led by the United States. The Bank was created with an idea to counter the dominance of European countries and the U.S. in global financial institutions such as the World Bank and IMF.
Infrastructure is needed in much of still emerging Asia, and by providing the funding to construct it, China and India make stride towards achieving economic and political status at par with the United States. BRICS countries have also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems. The CRA, unlike the pool of contributed capital to the BRICS bank, which is equally shared, is being funded 41% by China, 18% from Brazil, India, and Russia, and 5% from South Africa.
China and India are among the fastest growing Economies in the world. The economies of the five BRICS nations account for almost 30% of global GDP and 40% of the world’s population. BRICS countries produce a third of the world’s industrial products and half of all agricultural goods. Trade between BRICS countries has increased by 70% since the group was established in 2009. Noone can deny the ubiquitous presence of both India and China in the world stage.
Besides, China has recently proposed the IMF to add its currency Renminbi as a reserve currency as part of the Special Drawing Rights (SDRs).This move has the potential to shift the global economy toward a bipolar order with two dominant reserve currencies-the U.S. Dollar and the Chinese Renminbi.
In the past IMF has been accused of practicing ‘one-size-fits-all’ approach and imposing liberalization indiscriminately even on those countries where financial institutions were not well-developed. IMF conditionalities allegedly ruined several developing economies. The World Bank along with the WTO has advocated protectionism against industries of the developing countries while protecting interests of the developed countries, such as the recent Agreement on Agriculture, which stipulates reduction of export subsidies on agricultural produce on which livelihoods of the poor in the developing countries depend.
Emergence of this new ‘Eastern power Bloc’ will motivate the IMF and the World Bank to function more normatively, democratically, and efficiently, in order to promote the reforms of international financial system as well as it will lead to democratization of international relations.
China is also undertaking ambitious project to build Maritime Silk Route connecting all major ports across South, South-East and Central Asia through land and sea to boost its trade and gain strategic importance. The initiative will push each economy to advance toward the goal of setting up deep integration of markets, multi-level communication, efficient network of land, sea and air passages, and closer cultural exchanges.
Recently India has also been accorded full membership of the Shanghai Cooperation Organisation (SCO) along with Pakistan at its Ufa summit held in Russia. SCO membership to India will have significant benefits from Economic point of view. It will open up trade, energy sector and strategic transit routes between India and Russia, Central Asia, China. As Iran has observer status in the SCO, it will serve as a platform for India to boost trade through the Iranian ports of Bandar Abbas and Chabahar. These ports are considered as India’s gateway to Central Asia through International North-South Transport Corridor (INSTC).
Thus, in this politically polarized world, SCO will play an important role in counter-balancing India’s perceived tilt on security issues towards U.S. and its allies. It can help to maintain full balance of India’s relations with the western powers.
Regional stability is the basis of the economic collaboration and economic development boosts regional stability. Therefore, both the BRICS and the SCO will jointly and effectively promote stability and prosperity in Asia and counter the hegemony of global institutions such as World Bank and IMF.