Geopolitics

Can You Build A Bank Of BRICS? Big New Ambitions For World's Emerging Powers

A decade after first being lumped together, the world's leading emerging economies show all signs of claiming a growing slice of influence. Yet at their latest summit, plans emerged to pool their resources in a bank to rival the World Bank. It&am

Indian Prime Minister Manmohan Singh and Brazilian President Dilma Rousseff last year at a BRICS summit.
Indian Prime Minister Manmohan Singh and Brazilian President Dilma Rousseff last year at a BRICS summit.
Alain Faujas

In 2001, Jim O'Neill, then-economist at investment bank Goldman Sachs, coined the acronym BRIC to refer to the world's four biggest and fastest-growing emerging markets, hot on the heels of the West. The term was an overnight success. By grouping together with a handy moniker the nations of Brazil, Russia, India and China -- and adding South Africa in 2011 to make it BRICS with a final "s' -- O'Neill highlighted exactly which up-and-coming countries the global media should be focusing on.

It is impossible not to take this alliance seriously: it comprises 45% of the world's population; it owns one-fourth of the planet's natural resources; and it generates about two-thirds of global growth. One cannot fail to be impressed by these five world champions of development who have been organizing group summits since 2009, the last of which took place in New Delhi last week.

Delhi Declaration

If we are to believe the group's concluding statement from this meeting, the BRICS's unity is absolute. In the Delhi Declaration they admonished the developed world for injecting "excess liquidity" into the economy to maintain its own growth, which provoked "volatile capital flows and raw material prices." They also criticized "the slow rate" of reforms of the IMF International Monetary Fund currently underway with the aim of giving the BRICS a stronger position in the management structure.

Furthermore, the BRICS decided to entrust their respective central banks with the task of developing the use of their national currencies, instead of the dollar, for commercial transactions within the group. These transactions added up to $230 billion in 2011 (+28%).

Their second financial proposal – the creation of a "BRICS bank" to finance their development – seems more risky. Of course, if the World Bank, the largest provider of loans globally, were to neglect BRICS funding in favor of poorer countries, a "BRICS bank" would be their only option. However, that is not the case. India, for example, has received the tidy sum of $42 billion in various loans from the Washington D.C.-based institution.

Robert Zoellick, the World Bank's outgoing president, diplomatically chose to congratulate them on this project, which will provide new competition for the World Bank and stated that he was "enough of an economist not to be in favor of monopolies."

But this is a perilous initiative because the future BRICS bank may well have the money, but it won't have the expertise which allows the World Bank to offer the kind of advice, as well as funding, that can develop major projects like a country's agricultural sector or the fight against female illiteracy.

The project promises to be slow and onerous, as proved by the Latin American "Banco del Sur" that the continent has not yet finalized despite work starting in 2007. Furthermore, only China has the copious amounts of money necessary for the project to succeed ($3.2 trillion in reserves): this means that the Chinese will expect to be in charge of the institution, something that neither Russia nor India would be prepared to accept.

"It is a very long-term project," said François Bourguignon, director of the Paris School of Economics. "It will be a long time before the BRICS bank is capable of offering the same quality of service as other regional multilateral banks. And will its reserves be large enough for the bank to enjoy the Triple A rating?" If not, it will not be able to borrow from the markets with the same advantageous rates as the World Bank.

Diplomatic games

It should be noted that the BRICS cannot even manage to come to an agreement on symbolic issues, like who should replace Robert Zoellick at the head of the World Bank. The only chance the BRICS have of ending American control of the post and securing the prestigious position for one of their own is to present a united front behind a single candidate – someone sufficiently competent in the field of development to end the monopoly of the past. Otherwise, the American candidate, Jim Yong Kim, is sure to achieve a majority thanks to support from the developed world. And yet, the BRICS are incapable of overcoming infighting to rally behind either Ngozi Okonjo-Iweala, the Nigerian Finance Minister and former Managing Director of the World Bank, or José Antonio Ocampo, the ex-Colombian Finance Minister and a former Under-Secretary-General at the UN.

At the end of the day, the BRICS don't agree on much, except on the need to contest the developed world's domination of global government. This is a line of argument regularly trotted out by the Chinese, though they may soon find themselves charged with the lead role in the destiny of the global economy, when they will be obliged to demonstrate significant improvements in terms of their monetary, commercial and social responsibilities.

The BRICS, and above all, their supposed unity, are a figment of the media's imagination, but a very convincing one nevertheless.

Read more from Le Monde in French.

Photo – Brazilian President's office

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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