BRICS New Development Bank to Rival World Bank. Will It Further Devalue the Dollar?

Reports coming out of the 6th annual BRICS Summit have many financial analysts declaring one more nail in the coffin of the U.S. dollar.

Yesterday, the leaders of the BRICS alliance of countries (Brazil, Russia, India, China, and South Africa) met in Fortaleza, Brazil to finalize agreements for the formation of a new international bank and lending consortium called The New Development Bank. Its purpose: to provide developing countries funding in lieu of loans from the World Bank or IMF. 

The World Bank currently has strict requirements for developing countries accepting loans including

• opening up their markets to foreign investments 

• privatizing state-owned enterprises 

• lifting trade restrictions 

• limiting or eliminating coal plant production

• removing price controls

These requirements are often detrimental to developing countries that are already in a dire financial state.

This is just one of the reasons why the BRICS countries have created their New Development Bank. They plan to offer developing countries loans without such restrictions. Another purpose is to reduce their dependence on the weakening U.S. dollar.
Many analysts feel that the BRICS nations created the New Development Bank over fears that the dollar is poised to collapse.

The ramifications for the U.S. and EU economies could be devastating.  

Since "The Nixon Shock" in 1971, when President Nixon ended the gold standard from backing the U.S. dollar, the Federal Reserve has been able to print as much money as it needs. The result of this executive order turned the dollar into a "fiat currency" causing its value to plunge and the subsequent 40 years have been marred by massive inflation punctuated by periodic economic bubbles.  

The only thing that has kept the dollar from becoming completely worthless was a deal that Nixon made with the government of Saudi Arabia, where the U.S. would offer military protection and weapons in exchange for all petroleum sales to be conducted in U.S. Dollars. This was the creation of the U.S. "petrodollar" and has become one of the primary motivators of U.S. foreign policy in the middle east.

The New Development Bank was established with initial investments from each country, totaling $100bn. Despite funding the bank with U.S. currency, the end goal for the bank will likely be to replace the dollar with gold-backed securities and the Renminbi.

After much negotiation, the final location of the New Development Bank headquarters will be in Shanghai, China. Other locations considered were New Delhi and Johannesburg, South Africa.

In addition to the funding, the leadership of the bank will also be shared among the BRICS nations. The first executive officer will be from India, the board of directors will be from Brazil, and the chairman of the board of governors will be from Russia.

The combined GDP of the BRICS nations is nearly equal to that of the U.S. and Europe. China's economy is expected to surpass the U.S. later this year. As time goes on, more and more countries are going to be moving away from the U.S. Dollar and backing their assets with the strengthening Renminbi, gold, and silver.