Banks close to agreement on local currency settlement

SANYA, Hainan - Agreement on developing settlement and credit in local currencies will be reached among BRICS countries, executives of five national development banks announced on Wednesday, a move expected to increase the role of their national currencies.

The five banks - representing Brazil, Russia, India, China and South Africa - will sign a framework agreement on financial cooperation on Thursday as the leaders of the five BRICS countries at the summit look on.

The banks - China Development Bank Corporation (CDB), Banco Nacional do Desenvolvimento Economico e Social (BNDES), Development Bank of Southern Africa, Vnesheconombank and Export-Import Bank of India - will launch the first intergovernmental cooperative project between BRICS countries, said Vladimir Dmitriev, chairman of Vnesheconombank, the state corporation bank for development and foreign economic affairs of Russia.

He made the remark at the BRICS Interbank Cooperation Mechanism Annual Meeting and Financial Forum held in Sanya on Wednesday.

Luciano Coutinho, president of BNDES, told China Daily that the agreement will focus on opening up credit and financing in local currencies between the countries.

"The institutions have also expressed interest in assisting each other on issues of access to local markets and possible bond issues in local currency," Coutinho said.

He said that the framework will over time allow BRICS countries and their companies to rely less on foreign financing in cross-border transactions with each other and avoid unnecessary hedging costs.

Stronger financial cooperation with more use of their national currencies will somewhat reduce the reliance on dollars, said Chen Daofu, policy research chief of the Financial Research Institute at the State Council's Development Research Center.

Chen Yuan, chairman of CDB, urged the countries to increase multicurrency trade settlement and lending in a practical and efficient way.

"It is in the interest of all to practice lending and settlement in domestic currencies," Chen said.

Increased lending flows between the BRIC countries' development institutions could be a concrete step in the right direction toward establishing new currency markets, Dmitriev, chairman of Vnesheconombank, said.

"Given the specifics of financial institutions for development and their focus on long-term outcomes, we will not have to stall and wait for the pending changes. Rather, we can actively engage in establishing new currency markets."

He expected the IMF special drawing rights currency basket should include the Chinese yuan, Russian rouble, and the currencies of other BRIC countries in the future. Russia has the world's third-largest foreign currency reserves, after China and Japan.

"The cooperation of BRICS countries on global issues and their constructive opinions will greatly help the international community to solve current problems as the five members hold increasing influence in the world economy," South Korean Prime Minister Kim Hwang-sik said on Wednesday during his four-day official visit.

China Daily

(China Daily 04/14/2011 page14)