February 22, 2024

Leading Business

Business in Evolution

Shanghai-based New Development Bank seeks to finance more infrastructure projects in local currency to avoid forex fluctuations

3 min read
The New Development Bank (NDB), which funds infrastructure developments in emerging economies, is looking to finance more projects in local currency as a way of avoiding fluctuations in exchange rates.

Dilma Rousseff, president of the Shanghai-headquartered lender, told the bank’s annual meeting on Tuesday that it envisions 30 per cent of loans being offered in local currencies, up from 22 per cent at present. It currently uses the US dollar for most of its financing.

Anil Kishora, vice-president and chief risk officer, later told reporters at a media briefing on Tuesday that the goal would be achieved within five years.

“We need to create a diversified global currency system,” Rousseff told the briefing. “In the future, it is unlikely that one single currency can dominate the world’s currency system. We will see more local currencies used to settle trade.”

To date, the multilateral bank, founded in 2015 by Brazil, Russia, India, China and South Africa, known as the BRICS countries, has granted loans worth US$33 billion to more than 96 projects in its five founding-member countries, according to its website.

The president’s statement on local-currency financing comes at a time of heightened geopolitical tensions following Russia’s invasion of Ukraine and souring Western relations with China.

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Chinese Vice-Premier Ding Xuexiang said at the annual meeting that a global economic recovery is not on solid footing and Beijing would remain determined in its resolve to develop the NDB into an open multilateral bank, together with other stakeholders.

“The NDB is designed to better serve the emerging economies by financing more infrastructure construction and sustainable projects,” he said.

The NDB has accepted three new members in recent years: Bangladesh, the United Arab Emirates and Egypt.

Uruguay is in the process of joining, while the Financial Times reported early this month that Saudi Arabia is also in talks to join the bank.

On Monday, the bank announced that it had issued 8.5 billion yuan (US$1.2 billion) worth of panda bonds on mainland China’s interbank bond market.

It said in a statement that the successful sale of the bond reflected investors’ confidence in the NDB and the bank’s strong reputation in the market.

Rousseff said the NDB would aim to diversify its sources of funding by mobilising more financial resources denominated in currencies like the Chinese yuan, the US dollar and the euro to support infrastructure and sustainable projects in the member countries.

The NDB is one of the two policy banks heavily backed by Beijing to support infrastructure construction in emerging economies as China increasingly wields its economic influence worldwide.

NDB and the Asian Infrastructure Investment Bank, a multilateral lender initiated by Chinese President Xi Jinping, are pitched as alternatives to established global institutions such as the World Bank.

NDB, formerly called BRICS Development Bank, had an initial capital base of US$50 billion, evenly contributed by the five founder countries.

Rousseff, who took office at the NDB in March this year, said the bank would work more closely with other multilateral and national banks.

She will hold the role of NDB president until July 2025 when Brazil’s chairmanship comes to a close.

The former Brazilian president helped found the NDB in 2014, part of the BRICS nations’ efforts to wield influence in a global financial system dominated by developed Western economies.

She said the NDB would bring in more members as a way of expanding its businesses and influence around the world.

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