Bricks refers to a group of countries that include Brazil, Russia, India, China, and South Africa. The main object of BRICS is to provide loans to its member countries so that they could use the funds in creating infrastructure and for sustainable development projects. However, other growing economies can also get loan from the NDB.
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The New Development Bank (NDB), founded by BRICKS nations, is going to issue INR bonds by October. A Bond represents a loan or debt security that are issued by organizations to raise funds from market. Since bonds are denominated in Indian rupees, the bonds' value and interest will be paid in Indian rupees. No other currencies will be used to make payment.
This crucial decision shows that the strength of financial markets of BRICS nations including India are rapidly growing.
The decision of issuing INR bonds by the NDB will promote lending in local currencies. This strategic effort will reduce the dependency on foreign currencies for borrowing thereby making the process of borrowing more easy. The cost of borrowing will not get affected by currency fluctuations.
It is expected that this move will potentially bring more positive growth in India's economy. If it happens, it will increase Investment, boost economic growth, and help the country managing funds for their important projects.
The decisions of NDB to issue INR Bonds may encourage other nations with growing economies to move on a same path.
Only few currencies have dominance power on international finance. US dollar has supremacy all over the world. The move of BRICS could potentially change the shape of the landscape of international finance. If other nations and institutions that are not part of BRICS, following the same strategies, issue bonds in their local currencies, it could bring diversification in the international financial system. Not only that dependency on a few dominant currencies will be reduced. It will also bring greater stability in financial system.
The Rise of BRICS and the New Development Bank
BRICS is an abbreviated word that represents five major growing economic nations: Brazil, India, Russia, China, and South Africa. The financial system of these five countries have shown remarkable growth over the past few decades. The BRICS nations came together and founded the New Development Bank (NDB) which works as a financial institution to provide financial help to various projects that involve infrastructure development and sustainability. The main objective of the bank is to provide financial support to projects that work towards the development and sustainability of infrastructure within BRICS countries and other emerging economies.
Issuing Indian Rupee Bonds: A Pioneering Step
The NDB, a bank established by BRICS provides financial support to countries for their development, has announced it will make bonds available in Indian Rupees. This is a new step in the way money is used globally. Generally, all countries transact large sums of money in a few foreign currencies such as the US dollar, the euro and the Japanese yen. But now, this move will bring changes in the way money is used in the international market, popularizing local currencies like Indian Rupees globally.
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When bonds will available in Indian Rupees, it will encourage more people to invest. Indians will use their savings and investment in buying bonds. Borrowing money in foreign currency is a major problem for many developing countries. They face fluctuations in the value of money. For instance, when countries borrow in foreign currency like US dollar, they worry about the value of dollar which can fluctuate over time. When the value of currency starts fluctuating, situations become unstable for people who take loans. But if the NDB provides loans in local currency in India, the fear of fluctuation in the value of money will be minimized. The NDB's objective is to make the economy of its member countries stable.
Boosting Local Currency Lending and Economic Development
Issuance of special bonds in Indian Rupees matches with NDB's overall desire. If it happens, BRICS countries will be able to borrow money in their own currency. Borrowing and lending money will be easier and safer for BRICS nations in their own currency. They can see better growth in their economies. Their dependency on foreign currencies will reduce when they will be able to borrow money in their own currency. This will make their financial systems more stable and strong.
The decision of releasing INR bonds can have positive effect on Indian economy. India is an emerging economy and will grow even more when more investments will come from foreign countries. If this special bonds is issued in Indian Rupees, India will have great influence over global financial systems.
Implications and Future Possibilities
This move of The NDB could inspire Other banks and financial institutions across the world. They could also start borrowing and lending money in their own currency. These modifications could reduce the influence of a few foreign currencies like US dollar, the Euro, and the Japanese yen on the global finance and make the whole world financial system diverse. Indian currency could also be used for international trade when the NDB start releasing bonds in Indian Rupees.
If INR bonds contribute to the economic growth of India as the NDB wants to do overall, other BRICS countries might also use similar ideas to develop their economies more. Inspired by these things, these countries will work together even more and further develop the economy of their respective countries. The issuance of bonds in Indian Rupees by NDB indicates that BRICS nations want to popularize their countries' currency all over the world.
Conclusion
In order to bring financial stability among BRICS nations and other emerging economies, the NDB decided to launch special bonds in local currency like Indian Rupees. It will be an impressive move by the NDB to include other nations' currency in big money transactions in the global market. The move will not only diversify the entire international financial system but also encourage BRICS countries to work together to boost their economies.
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