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BRICS to sign unique pact at Sanya to use own currencies for lending and grants

April 13, 2011 - Sanya (China)

In what could be seen as signal of its growing clout in world economy , the group of fastest growing economies -- Brazil, Russia, India, China and South Africa-have zeroed down to sign first of its kind credit agreement during third BRICS summit in Sanya, the coastal town of China.

According to this new pact, BRICS nation would be able to give loans or line of credit to each other in their own local currencies instead of predominant US dollar. However, this understanding only confines to lending credit and not trade.

"BRICS will be having regional credit balance and there will be an arrangement to make loan grants to each other. We are making a beginning... An agreement will be signed under which BRICS countries will be able to issue credit or grants to each other in own currency," National Security Advisor Shiv Shankar Menon told reporters on Prime Minister's special aircraft en route to China's coastal city of Sanya."

Prime Minister Manmohan Singh will attend the summit in Chinese resort city of Sanya, where a whole range of issues related to global financial, economic situation, energy security, food security and challenges posed by terrorism will be discussed.

At the Summit, South Africa will join as the new member, making it a five-nation grouping of fastest growing economies.

Ever since the 2010 BRIC Summit held in Yeketrinberg in Russia, the group has been talking about reforming international monetary system in which reserve currency is the focal point.

Informally, China and Russia has been advocating introduction of alternate exchange currencies to US dollars in the light of shrinking US economy post global recession. India is of the view that there is no such formal proposal and such changes could not be made by BRICS alone, but at the multilateral monetary institutions.

BRICS economies hold 40 percent of the world's currency reserves, the majority of which is still denominated in US dollars.

As BRICS economies emerge, its contribution to the world economy grows in strength and US economy wanes, there is a growing confidence in the BRICS member states in general and especially among Russia and China that their local currency could be used as an alternate to US dollar which has been dominating the world trade since decades.

The third BRIC summit will start from April 14 in Sanya and will feature South Africa for the first time, which will join Brazil, Russia, India and China to discuss matters of common interest to the bloc such as trade, politics, climate change, and global security.

Goldman Sachs says the BRIC economies will potentially constitute four of the five largest economies by 2032.

The Indian Prime Minister arrived in Sanya on Tuesday evening to attend the summit. Chinese President Hu Jintao , Brzail's newly elected President Dilma Rousseff , Russian President Demitry Medvedev and President of South Africa Jacob Zuma have also arrived for the summit. By Naveen Kapoor


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