NDB Local Currency Lending

NDB local currency lending is the financing model under which the New Development Bank (NDB)—the multilateral lender established by Brazil, Russia, India, China and South Africa—extends loans denominated in the national currencies of its members and borrowers rather than exclusively in US dollars. The practice flows directly from the bank's founding instrument, the Agreement on the New Development Bank signed at the Sixth BRICS Summit in Fortaleza on 15 July 2014 and entered into force on 3 July 2015. Article 1 of the Agreement frames the bank's purpose as mobilising resources for infrastructure and sustainable development in BRICS and other emerging economies, and the Articles of Agreement expressly authorise the bank to lend in local currencies. The Fortaleza Declaration itself recorded the members' intent to use national currencies, situating the policy within a broader BRICS objective of reducing dependence on a small set of reserve currencies and the volatility that dollar-denominated debt transmits to developing-country balance sheets.

Mechanically, local currency lending begins with the bank raising funds in the relevant domestic capital market rather than swapping dollars at the point of disbursement. The NDB registers a bond programme with the national regulator, issues paper to local institutional investors—pension funds, insurers and banks—and on-lends the proceeds to the sovereign or sub-sovereign borrower in the same currency. Because the bank's assets and liabilities are matched in that currency, neither the borrower nor the bank carries the residual exchange-rate mismatch that defines conventional hard-currency project finance. The borrower services debt from revenue streams—tariffs, tolls, tax receipts—generated in the same unit, so a depreciation against the dollar does not inflate the local-currency cost of repayment. Where a domestic bond market is too shallow, the bank uses currency swaps and partial guarantees to synthesise local-currency exposure.

The instrument exists in several variants. The most developed is the onshore panda bond programme in China, where the NDB issues renminbi-denominated paper in the interbank market. The bank also pursues offshore issuance, local-currency credit lines to national development banks for on-lending, and blended structures combining a hard-currency tranche with a local-currency tranche. At its founding the NDB set an aspirational target of providing roughly 30 per cent of its financing in members' local currencies, a benchmark cited repeatedly in its General Strategy documents, including the 2017–2021 and 2022–2026 strategies, the latter raising the medium-term ambition toward a larger share of the portfolio.

Named instances illustrate the trajectory. The NDB's first bond, issued in July 2016 on the China interbank market, was a RMB 3 billion green financial bond—the inaugural use of the local-currency model. The bank subsequently approved rand-denominated and rupee-denominated facilities, opened the Africa Regional Centre in Johannesburg to deepen rand operations, and signed its first Brazilian-real loans for projects under the administration of successive governments in Brasília. President Dilma Rousseff was appointed to head the bank in March 2023, and under her presidency the Shanghai headquarters reiterated the goal of lifting local-currency lending toward 30 per cent of the book. The bank's expansion to admit Bangladesh, the United Arab Emirates, Egypt and others after 2021 widened the set of currencies in which it could in principle operate.

Local currency lending should be distinguished from the Contingent Reserve Arrangement (CRA), the parallel BRICS instrument created by a separate treaty at Fortaleza. The CRA is a USD 100 billion liquidity backstop—a swap network to address balance-of-payments pressures—and is administered with reference to the IMF, whereas the NDB is a project-finance institution. It is also distinct from de-dollarisation as a monetary doctrine: local currency lending is a balance-sheet technique addressing currency mismatch on specific loans, not a wholesale repudiation of the dollar in trade invoicing or reserve holdings. Nor is it the same as the cross-border use of national currencies in bilateral trade settlement, which BRICS central banks pursue through separate payment arrangements.

The model faces real constraints and has attracted scrutiny. Shallow and illiquid domestic bond markets raise the bank's funding costs, and a lower credit rating in any single member market erodes the pricing advantage. Western sanctions on Russia after February 2022 froze the NDB's Russian operations and complicated its access to dollar markets, paradoxically strengthening the institutional case for local-currency funding while exposing the difficulty of issuing in a sanctioned member's currency. Critics note that the 30 per cent target has proven slow to reach, that the renminbi has dominated local-currency issuance, and that genuine diversification across all member currencies remains aspirational. The bank's own reporting concedes that the renminbi share far exceeds that of the rand, real or rupee.

For the working practitioner, NDB local currency lending is a concrete expression of the emerging-economy push to reshape development finance architecture and a recurring item in BRICS communiqués, G20 finance-track discussions and UPSC General Studies II coverage of international institutions. Desk officers tracking the BRICS agenda should read the policy as both a technical risk-management tool and a geopolitical signal: it lowers the transmission of dollar-cycle volatility to infrastructure borrowers while incrementally advancing a multipolar monetary order. Its real-world success, however, will be measured less by declarations than by the depth of the local bond markets the bank can actually tap.