China shifting from the world’s factory to World Infrastructure builder and funder – China is leveraging its nearly 4 trillion in reserves for global infrastructure projects

Brazil, Russia, India, China and South Africa, known as the BRICS, will approve the creation of the $100 billion reserve fund and $50 billion bank at a July 15-16 summit.

The IMF controls SDR 476 billion and has 90.5 million troy ounces of gold. The IMF’s gold holdings amount to about 90.5 million troy ounces (2,814.1 metric tons), making the IMF the third largest official holder of gold in the world.

The BRICS initiatives are born out of frustration with a lack of participation in global governance, particularly in the World Bank and International Monetary Fund, said Arvind Subramanian, senior fellow at the Peterson Institute for International Economics. The measures aren’t big enough to boost growth or cohesion in the group as foreign investor sentiment sours and member states focus on issues close to home, such as Brazil’s elections, the conflict in Ukraine and new economic policy plans in India.

The new development bank, which won’t impose policy requirements on borrowers, will help fill fast-growing infrastructure financing needs, said Kevin Gallagher, professor of international relations at Boston University. The BRICS can also use it to pressure developed countries, particularly the U.S., to advance stalled measures to make global financial institutions more equitable, he said.

“They can say, ‘look, we have an alternative,’” Gallagher said in a phone interview. “It gives you a lot of political leverage.”

With an expected startup capital of $50 billion financed equally by the five members, the bank could lend $3.4 billion per year in a decade, according to a March study by the UN Conference on Trade and Development. That compares with the $61 billion the World Bank expects to lend this year. The BRICS bank could expand to $100 billion as more members are added.

The BRICS bank is a top priority for Modi in India.

The BRICS bank, along with the separate $50 billion Asian infrastructure bank, is another way for China to get higher returns on its $3.9 trillion reserves than it does from buying U.S. Treasuries, said Oliver Rui, professor of finance and accounting at the China Europe International Business School in Shanghai, the favorite city to headquarter the bank.

* Other countries are helping to double what China puts into the BRICS and Asian Infrastructure bank
* China gets more global influence
* China gets help funding more projects which will likely mostly go to best infrastructure building companies in the world (which are the Chinese train, road and bridge companies)
* China shifts from being just the world’s factory to the World’s funder and builder of Infrastructure

If this works then the developing world will catch up on the backlog of needed infrastructure and the least developed countries should have accelerated development. The least developed countries will no longer be short of roads, rail, water projects and other needed construction.

China avoids or delays any over-development bubble that many critics were claiming.

Clearly the projects that help China get to the mineral resources of other countries will get priority.

The US is the world’s policeman and world’s shopper but China will be the world factory worker and construction worker and lender.

China would be the Construction worker on the left and the US is the policeman in this representation of the roles in the World Village

Village People for my analogy

* Cop
* Native American
* G.I. / Sailor
* Construction Worker
* Cowboy
* Biker

Back on the topic of China’s banks and financial alliances

Multilateral lending agencies are also a way for Beijing to legitimize investments abroad, after nationalistic backlashes in Africa against Chinese investment, said Subramanian.

China will also fund $41 billion of the currency reserve agreement, which member countries will be able to tap in case of balance of payment deficits. South Africa will earmark $5 billion of its reserves and the remaining countries will set aside $18 billion each. Details on the functioning of the $100 billion agreement, which amounts to 2 percent of the BRICS’s pooled reserves, have yet to be worked out.

The Brazilian real is the second-best performer this year with a 6.8 percent gain, and the rand the third-worst among 16 major currencies tracked by Bloomberg with a 1.7 percent loss. The rupee has gained 2.9 percent and the ruble has lost 4.3 percent.

Each country would have a limited amount of cash it could draw on from the currency reserve, and lenders have an opt-out clause, allowing them to drop out of the agreement any time, according to the Brazilian official.

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