Russia's lower house of parliament, the State Duma, yesterday gave its green signal for the establishment of the BRICS reserve currencies pool of $100 billion, which is seen as a counterweight to western-led financial institutions.
Russia also confirmed that it would contribute $18 billion to the pool.
Major emerging economies Brazil, Russia, India, China and South Africa had agreed last July in Brazil to establish the $100-billion BRICS New Development Bank (NDB), as an alternative to global lenders the World Bank and the International Monetary Fund (IMF), aiming for the development of financial cooperation between the five member nations.
China will have the maximum share of $41 billion, South Africa $5 billion while India and Brazil will have $18 billion share each.
NDB will be headquartered in Shanghai and its first president will be Indian. Indian prime minister Narendra Modi is expected to decide soon from a list topped by former finance minister Yashwant Sinha and former disinvestment minister Arun Shourie to lead the new bank.
The currency pool will be maintained by a board of directors, a permanent committee, and a coordinator, whose functions will be performed by the state chairing BRICS.
The BRICS nations account for about a fifth of the global gross domestic product (GDP), and make up over 40 per cent of the global population.
Last week, Russian finance minister Anton Siluanov said that the BRICS bank has to be launched prior to the group's July summit, which is scheduled for 9-10 July in the Russian city of Ufa.
Russia, which has taken over the presidency of the BRICS group from Brazil earlier this month, was the first country in the bloc to have ratified the agreement in early March for the creation of the NDB.
The new bank is expected to become operational by next year.
The NDB, along with the China-led Asian Infrastructure Investment Bank (AIIB) are considered as direct challenges to the West-led global economic order. Some economists view them as a response to the failed reforms at the World Bank and the IMF, as China and India cannot increase their influence in those institutions.
NDB is expected to meet short term liquidity requirement of the member countries and support investment projects, while AIIB's primary goal will be to finance infrastructure projects in the Asian region.
It is speculated that these two monetary institutions would emerge as alternative source of funding in the international financial market.
In the near future the most likely relationship between the two is expected to be complementary rather than a conflicting one.
Welcoming the new rivals, the World Bank said the new banks could be its strong allies in helping to reduce poverty in the global economy.
Speaking in Washington earlier this month, the World Bank president Jim Yong Kim said, ''If the world's multilateral banks, including the Asian Infrastructure Investment Bank and the New Development Bank, can form alliances, work together, and support development that addresses these challenges, we all benefit – especially the poor and most vulnerable.''
Kim further stated that he will do everything in his power to find new and innovative ways to work with the new institutions.
According to some estimates, demand for infrastructure investment in emerging markets and developing countries expected to more than double to around $2 trillion per year by 2020 and the banks would suffer from resource crunch as they have too little capital to tackle infrastructure deficits.