THE decision to set up the US$50 billion New Development Bank and a matching reserve fund must be seen as a challenge both to US financial dominance as well as the US dollar-backed International Monetary Fund (IMF) and the World Bank. The so-called BRICS group of nations - Brazil, Russia, India, China and South Africa - that launched the project last week will have an equal say in the bank's and the reserve fund's affairs. The Contingent Reserve Arrangement will have US$100 billion to head off potential economic volatility, most immediately perhaps with problems linked to the winding down of the US Federal Reserve's stimulus policy.

The desire for an international lending agency independent of the West goes back a few decades. For instance, there was fierce criticism of the World Bank and the IMF during the 1997 East Asian financial crisis as it became clear that the two Bretton Woods institutions were bent on pushing the "Washington Consensus". The IMF would only proffer emergency funds contingent on recipients agreeing to deregulate their economy, an idea touted in those days by the Washington establishment as a remedy for all economic ills. Then, the Bretton Wood twins took to regularly upbraiding nations that resorted to capital controls or held fast to their sovereign right to maintain an industrial policy.

There has also been resentment over the governance of the Bretton Woods institutions. Always, the World Bank was headed by an American and the IMF by a European. The voting structure of both institutions remains heavily tilted towards the West. Governance reforms have been much discussed but little has really changed.