The New Development Bank (NDB) and the BRICS Contingent Reserve Arrangement (CRA) were built by Brazil, Russia, India, China, and South Africa (the BRICS countries) in response to the ‘disappointing’ Bretton Woods Institutions, including the World Bank and the International Monetary Fund (IMF). The main difference between the Bretton Woods Institutions and the BRICS institutions is that the latter adopts an equal-weight system instead of a weighted voting system in the NDB (all five BRICS countries have equal shares and voting weights regardless of the major differences in their economic weights) and uses consensus instead of majority voting rules to make decisions regarding critical issues in the CRA. In fact, both the equal-weight system and consensus rule are unprecedented in the history of multilateral financial institutions. The World Bank, the IMF, the Asian Development Bank and even the Asian Infrastructure Investment Bank (AIIB) all adopt weighted voting systems and majority voting rules. We explain why the BRICS countries adopt these unprecedented designs through precise power measurements and carefully designed experiments. First, we measure the voting power of each member of the BRICS’ NDB and CRA under the current decision-making systems, using this information as a control group. Then, we remeasure the voting power of each member of the NDB under the assumption that their shares and voting weights are allocated according to their economic weights; additionally, we remeasure the voting power of each country of the CRA under the assumption that majority rules are adopted when decisions are being made on critical issues. Moreover, we establish evaluation indices of power equality and power equity based on classic and variant Gini coefficients and Lorenz curves and use them to assess and compare the power structures of the BRICS’ NDB and CRA in the contexts of different voting weight reallocations and different voting rules redesigns. We use these indices to precisely analyse whether the power structures of the BRICS institutions become more equable or equitable in the examined contexts and to investigate the relationship between equality and equity in this setting.
Policy Implications
- Why have no new members joined the NDB until now? Why is the development of the NDB much slower than expected (particularly in comparison to that of the rapidly growing AIIB)? What should the NDB do in the future? Our recommendation is that to attract new members, the NDB should clarify its rule regarding the share and voting weight allocations of new members and should possibly discontinue the use of its equal-weight system.
- The equal-weight system used in the NDB is controversial and unprecedented in the history of multilateral financial institutions. However, even if a share and voice reform could be discussed for the NDB in the future, considering China’s economic prowess in the BRICS, a pure ‘allocation by economic weight’ plan (such as is used in the AIIB) would be unrealistic and unacceptable for all the members except China. A high ratio of basic votes (equally distributed among all the members) to total votes or a semi-weighted voting system might be more feasible.
- The absolute equality and great inequity of the power distributions of the BRICS’ NDB and CRA result from their equal-weight system and consensus rule. To solve the current predicament, the NDB and the CRA may improve the equity of their power distributions through reallocating voting weights and redesigning voting rules.
- Suffice it to say, the equality and equity of a power distribution are negatively correlated. The BRICS institutions must address the trade-off between equality and equity and try to achieve a balance between these two values.
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