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  • Ross Aldridge In Las Vegas Nevada Reviews The New World Bank By BRICS 0 comments
    Jul 15, 2014 9:49 AM | about stocks: AU, SKF

    Ross Aldridge in Las Vegas Nevada reviews the New World Bank that is being formed by the BRICS countries. Could this be the beginning of the end of the United States currency domination?

    Fed up with U.S. dominance of the global financial system, five emerging market powers this week will launch their own versions of the World Bank and the International Monetary Fund.

    Brazil, Russia, India, China and South Africa -the so-called BRICS countries - are seeking "alternatives to the existing world order," said Harold Trinkunas, director of the Latin America Initiative at the Brookings Institution.

    At a summit Tuesday through Thursday in Brazil, the five countries will unveil a $100 billion fund to fight financial crises, their version of the IMF. They will also launch a World Bank alternative, a new bank that will make loans for infrastructure projects across the developing world.

    The five countries will invest equally in the lender, tentatively called the New Development Bank. Other countries may join later.

    The BRICS powers are still jousting over the location of the bank's headquarters - Shanghai, Moscow, New Delhi or Johannesburg. The headquarters skirmish is part of a larger struggle to keep China, the world's second-biggest economy, from dominating the new bank the way the United States has dominated the World Bank.

    The bloc comprises countries with vastly different economies, foreign policy aims and political systems - from India's raucous democracy to China's one-party state.

    Whatever their differences, the BRICS countries have a shared desire for a bigger voice in global economic policy. Each has had painful experiences with Western financial dominance: They've contended with economic sanctions imposed by Western powers. Or they've been forced to make painful budget cuts and meet other strict conditions to qualify for emergency IMF loans.

    Now, says Thomas Wright, a fellow at Brookings' Project on International Order and Strategy, "they want a safety net if they fall out with the West."

    Developing countries have also been frustrated because the U.S. Congress has refused to approve legislation providing extra money to help the IMF make more loans to countries in trouble. The money is part of a broader reform program that would give China and other developing countries more voting power at the IMF.

    Uri Dadush, an economist with the Carnegie Endowment for International Peace, sees no problem with the BRICS countries' development bank and financial crisis fund. But he worries that the five countries' decision to go outside of existing institutions provides more evidence of the "fracturing of the postwar (economic) system that gave us so much peace and prosperity. The system has not been able to adapt to the new reality, the rise of the new powers."

    The IMF and the World Bank seem to be taking the new challengers in stride.

    "All initiatives that seek to strengthen the network of multilateral lending institutions and increase the available financing for development and infrastructure are welcome," said IMF spokeswoman Conny Lotze. "What is important is that any new institutions complement the existing ones."

    Answering a question about the BRICS development bank earlier this month, World Bank President Jim Kim said: "We welcome any new organizations ... We think that the need for new investments in infrastructure is massive, and we think that we can work very well and cooperatively with any of these new banks once they become a reality."

    Conclusion: Ross Aldridge in Las Vegas Nevada sees no real threat to the US dollar being side swiped by the BRICS alignments but the major banks could see a dip soon. Go long with SKF and short bank stocks.

    Disclosure: The author is long SKF, AU.

    Themes: Financial Stocks: AU, SKF
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