Russian despot Vladimir Putin completed an agreement Saturday to set up a $100-billion reserve fund for the so-called BRICS — the five leading emerging economies that include Russia, China, Brazil, India and South Africa.
The deal was hailed as some as 'an alternative to the IMF' and 'a step towards financial independence from the IMF'.
The whole point of the fund is to shield the BRICS against "short-term liquidity pressures" while also promoting greater cooperation between the five member countries.
Yet the move is a tacit endorsement that things are not well within Russia. Putin's bizarre quest for personal grandeur has hurt his country deeply. His decision to invade Ukraine has resulted in tough sanctions that are cutting hard as they get compounded by low oil prices, Moscow's only real export.
By joining the bank and nominally pledging to contribute $18 billion to the reserve, it is effectively securing itself credit at a time the world will grant it none. That credit will come from China, which has promised to pour $41 billion into the fund, which was set up after an agreement signed in July 2014 in Brazil.
The whole bank being a "challenge western dominance over international money markets" is simply not true. Russia has been cut off from world financial markets due to its unpredictable and aggressive nature.
India and Brazil are relatively small contributors and likely just going along with the scheme to maintain relations with Russia, for its military hardware and China, for access to its consumers.
China in turn is pushing the scheme to get access to natural resources. China needs resources, particularly from Russia. If it takes creating a pseudo-credible financial institution to do so, that's a cost its willing to pay.
It also allows China to give money other troubled yet resource rich countries, such as most of Africa, on terms the IMF and real international super-powers find predatory. China can now insist on these cash for resources-at-all-costs deals and have the cover of an international organization.
The new body isn't a threat to the IMF - its a threat to anyone foolish enough to take loans from it. The group is certain to be utterly non-accountable and if the IMF causes problems for recipient countries the new BRIC bank will cause many more.
And watch for Russia to tap the bank once all members have ponied up the money. The Russian economy is severely hampered by a number of factors and it looks set to the first recipient of aide.