The BRICS Alliance recently created a bank, the New Development Bank (NDB), to establish its monetary and financial system as a means to rival Wall Street and the power of Western high finance.
The NDB has sold its first bonds denominated in South African rand. The bonds, a 1 billion rand ($52.3 million) five-year note, and a 500 million rand three-year note were sold on August 15, 2023. The auction attracted 2.67 billion rand of bids in total, according to auction results shared by two investors with Reuters.
Chief Financial Officer Leslie Maasdorp told Reuters in a recent interview that the bank aims to increase local currency lending, most of which has so far been in the Chinese Yuan, from about 22% to 30% by 2026, but that there were limits to de-dollarization.
The sale of rand-denominated bonds is a significant step for the NDB, as it allows the bank to raise funds in a currency that is more familiar to investors in South Africa and other African countries. The NDB has said that it plans to issue more bonds in local currencies in the future.
The sale of the rand-denominated bonds is also seen as a sign of the growing importance of the BRICS countries in the global economy. The BRICS countries are collectively home to over 40% of the world’s population and account for a significant share of global economic growth. The NDB’s decision to issue bonds in rand is seen as a way to strengthen the bank’s ties with the BRICS countries and to promote economic cooperation between them.
The rand bonds can also help to strengthen the NDB's ties with South Africa and other African countries. This is important because the NDB is committed to promoting economic cooperation and development in these regions. Thus, it can help to reduce the cost of borrowing for the NDB and make it more accessible to borrowers in these regions.
In addition, the rand bonds can help to promote the use of the rand as an international currency. This could be beneficial for South Africa, as it could make the country's exports more competitive.
The issuance of bonds in South African rands does not come without limitations. First, it is important to assess the size of the South African bond market. The South African bond market is not as large as some other bond markets, such as the US dollar bond market. This means that there is less liquidity in the South African bond market, which can make it more difficult for the NDB to issue bonds and raise the amount of money it needs.
Second, the creditworthiness of South Africa is another factor to evaluate. South Africa's credit rating is not as high as some other countries, such as the United States. This means that investors may be more hesitant to invest in South African rand bonds, which can make it more difficult for the NDB to issue bonds and raise the amount of money it needs.
Third, the volatility of the South African rand is also another feature to carefully assess. The South African rand is a relatively volatile currency, which means that its value can fluctuate significantly over time. This can make it difficult for the NDB to predict how much money it will need to raise in South African rand bonds, and it can also make it more difficult for investors to assess the risk of investing in these bonds.
Overall, the South African rand bonds play an important role in the NDB. They help to reduce the cost of borrowing for the bank, make it more accessible to borrowers in Africa, and strengthen the bank's ties with these regions.