Monday, July 13, 2015

It's a mindset

1. NDB is the New Development Bank, set up by five BRICS nations: Brazil, Russia, India, China, and South Africa.
2. KAMATH is President of the New Development Bank.

Okay, once again, third in a row from the BRICS Bank post in the Hindustan Times, the one I won't link to:
Asked whether the NDB would consider lending to non-member countries, Kamath said: "We will primarily lend to member countries. In due course, we will look at opening membership, in the next few months."

Specifically asked whether NDB could consider helping Greece which is in financial crisis, Kamath said: "I have no mandate to help any non-member... Beyond BRICS, I have no mandate."
I think that's exactly right. It would be very nice if the New Development Bank were to step in and help Greece out, no strings. But it's kind of a wet dream.

Kamath was asked to comment on a view that the BRICS bank has been set up to undermine the Dollar as it will lend in local currencies.

"I will put it like this. In developing countries, particularly BRICS, there are pools of capital which can be tapped and lent. Local currency financing is what we will look at in addition to hard currency finance. We will look at all pools of capital in addition to hard currency," he said.

He went on to add that local currency credit will protect the BRICS countries from currency fluctuations and volatility and "it is critical that we do it".

Again, exactly right. The New Development Bank is going to do things that develop the economies of the member states nations states. That's what the bank was set up to do, and that is its mandate.

It's not complicated. It would be very nice if the bank did some other things that need to be done. And the bank would probably be willing to do such things, if those things were mandated. But since those things are only "very nice" they're not going to get done.

Now as for undermining the Dollar: Notice that Kamath responded to that by talking about things that are part of his mandate.

You may think -- and I may think -- that the mandated things are, yes, going to undermine the U.S. dollar. And you may think, as I do, that this is a very serious problem for the United States. However, Kamath is correct.

Kamath is focused on the mandate he was given. He is going to do things to help member countries, even if those things undermine the U.S. dollar. He is not doing those things because they undermine the U.S. dollar.

He is doing things to help develop the BRICS. If those things happen to undermine the U.S. dollar, that's a shame -- but so it goes.

The lesson here is extremely simple and should be obvious: If the United States is concerned about the U.S. dollar, it is up to the United States to figure out what's wrong with U.S. economic policy, and to replace existing policy with something better. It is up to the U.S. to make the U.S. economy so strong and so appealing that other nations will choose *not* to do things that reflect badly on the United States, *even though* those things might be in their own self-interest.

It's a mindset.

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