The BRICS group of emerging economies will contribute $100 bln to a fighting fund to steady currency markets destabilised by an expected pullback of U.S. monetary stimulus, Russian President Vladimir Putin said on Thursday.
China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the currency pool. But it will be much smaller than the $240 bln originally envisaged and officials said it would not be functional for some time yet.
Cheap dollars that fueled a boom in Brazil, Russia, India, China and South Africa over the past decade have turned tail since Ben Bernanke, chairman of the Federal Reserve, warned in May of a 'taper' in the U.S. bond-buying scheme.
"The initiative to establish a BRICS currency reserve pool is at its final stage," Putin said in opening remarks to a meeting of BRICS leaders during a Group of 20 summit in Russia's second city, St. Petersburg. "Its capital volume has been agreed at $100 bln."
At the meeting of BRICS leaders, China committed $41 bln; Brazil, India and Russia $18 bln each; and South Africa $5 bln.
Earlier both Chinese Vice Finance Minister Zhu Guangyao and Russian Deputy Finance Minister Sergei Storchak said details still needed to be worked out, suggesting that much more work would need to be done on the reserve facility.
A joint BRICS development bank, with capital of up to $50 bln, is also still months away from realisation amid disagreements over burden sharing and where it should be based.
Last year's original initiative foresaw creating a pool of central bank funds available to BRICS facing balance of payments difficulties. There was also a push to create an IMF-style credit line to insure against external shocks.
The Fed is widely expected this month to take its first steps to reduce extraordinary monetary stimulus, with potentially huge implications for a global financial system where the U.S. dollar accounts for 62% of reserve assets.
The emerging nation facing the biggest financial shock, India, received scant sympathy from China and Russia as both called for policy action to tackle external deficits.
India said last Friday that it was liaising with other emerging countries on a plan to coordinate intervention in offshore currency markets. But it got little support and it is not clear if the currency reserve pool will be in place soon enough to help.
Nonetheless, Indian officials said they were counting on the strong support of the G20 to provide reassurance over the winding down of the Fed's quantitative easing programme as the U.S. economy picks up.
Arvind Mayaram, economic affairs secretary at India's ministry of finance said: "I think there should be a very strong statement on the G20 having a consensus on the concern about the spillover effects.
"I think if a strong statement is made on these two points, it will have a major calming impact on the markets in the emerging economies," he told reporters.
Get all the latest news and videos in your inbox. Register FREE