Threats presented to Washington consensus by BRICs
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The term BRICS is actually an ellipsis for an association of five outstanding nations whose economies are growing at a higher rate and have consequently had a very significant impact not only on regional but also on global matters or affairs. However, some of the countries in this association are newly industrialized. These nations comprise Brazil, Russia, India, China as well as South Africa which has been recruited into the association recently. On the other hand, the Washington Consensus refers to prescriptions of a policy that builds its foundation on both monetary and free market disciplines. The consensus, developed in 1989 in Washington DC, is made up of economic policy prescriptions that help to reform the economies of developing nations that have been wracked by crisis.
The set of policies contained in the Washington consensus were sanctioned by the well-known Washington financial institutions which comprise the World Bank, US Treasury, the International Monetary Fund as well as the Federal Reserve Board. However, the BRICS have posed some threats to the Washington consensus in many ways consequently rendering it unable to address real issues. For instance, the failure to support the candidate from one of the developing country to get into the IMF leadership was an issue that posed a threat to the Washington consensus.
Additionally, the withdrawal of Russia and China from the idea of supporting Brazil and India to join the United Nations Security Council as permanent associates was a great threat that the BRICS posed to the Washington consensus. The differences in development patterns, cultural beliefs and economic and social schemes have led to lack of coordination among the BRICS members. The distinguished stage of economic maturity as well has brought about misunderstanding amongst the member countries.
However, in some years back there is a greater portion in international matters that the BRICS want exclusively in economic governance globally through the International Monetary Fund and the World Bank. It has shown its interests in monetary policies of the economies that have grown or developed as well as in capital flows that are unpredictable. However, getting out of the global economic disaster has been a very slow process and has consequently brought to the attention of the BRICS that global slowdown is prevalent.
Today the BRICS have come up with schemes that tend to threaten the Washington consensus. First, an agreement of coming up with a pool of currencies that have been reserved is being advocated by the BRICS. This pool is particularly known as the contigement Reserve Arrangement CRA which the finance minister of Russia describes it as a sub-IMF. This measure that the BRICS countries are adopting will undermine the Washington consensus policy that aims at reforming economic crisis emanating from the developing economies as the counties are withdrawing themselves from the consensus mechanism (Tausch, 2007).
Additionally, every BRICS member has been allocated a given amount of money to rise towards developing the pool. For instance China has been allocated $41 billion, $5 billion for South Africa and $18 billion for Russia, Brazil and India. (Collins, 2013). This will pose a threat to the Washington consensus in the sense that the Washington financial institutions which comprise the World Bank, the International Monetary Fund and the US treasury department will not have the opportunity to venture in as many countries as possible in matters of stabilizing macroeconomics, trade and investment and in expanding the domestic economy market forces.
This will be the case since we must put into account that some nations will withdraw themselves from the Washington Financial institutions. Moreover, there is a plan by the BRICS to split the hegemony US dollar to act as the reserve currency. This takes the advantage of its weakness and that there are enormous reserves that are detained in the US dollar by India and China (Tragakes, 2012). The idea of breaking the US dollar hegemony to serve as the reserve currency poses a threat to the Washington financial institutions as some developing economies will turn to the BRICS reserve currency created after the breakdown of the hegemony US dollar.
Collins, D. (2013). The BRIC states and outward foreign direct investment. Oxford: Oxford University Press.
Tausch, A. (2007). From the “Washington” towards a “Vienna consensus”?: A quantitative analysis on globalization, development and global governance. New York: Nova Science Publishers, Inc.
Tragakes, E. (2012). Economics for the IB Diploma. Cambridge … [et al.: Cambridge University Press.