Currency reserve to assist liquidity
Updated: 2013-09-06 08:56
By Wu Jiao and Fu Jing in St. Petersburg and Wei Tian in Shanghai (China Daily)
China will contribute the lion's share to a foreign currency reserve set up by major emerging economies to mitigate liquidity strains as the US pulls back from its monetary stimulus.
Leaders of Brazil, Russia, India, China and South Africa, better known as BRICS, agreed on Thursday to create a $100 billion pool of currency reserves as they met on the sidelines of the G20 summit in St. Petersburg, Russia.
President Xi Jinping and his Russian counterpart Vladimir Putin have a talk before they attend a meeting of G20 leaders in St. Petersburg, Russia, on Thursday.[Photo by Agence France-Presse]
Analysts said the reserve fund will help ease short-term liquidity pressure and safeguard the financial stability of major emerging economies.
China will contribute $41 billion, and Brazil, India and Russia will each invest $18 billion, with South Africa paying the remaining $5 billion.
"Consensus has been achieved on many key aspects and operational details" regarding the establishment of the fund, said a statement issued after the meeting.
Zhang Monan, an economist at the State Information Center under the National Development and Reform Commission, said a mutual reserve will be a "financial firewall" for BRICS countries.
"The US tapering off its quantitative easing later this year will have a profound impact on the global financial market, especially emerging economies," Zhang said, explaining that such an impact will involve capital outflow and depreciation of domestic currency and assets.
The US Federal Reserve is widely expected to take its first steps this month to reduce the extraordinary monetary stimulus, which observers said will bring turmoil and substantial spillover effects to a global financial system where the US dollar accounts for 62 percent of reserve assets.