 "What is BRICS Pay, the payment system Russia is proposing?")
Russia is proposing that Brics nations get their own international payment system.
Moscow, which is currently chairing the Brics grouping, has long called for an alternative to the West-backed International Monetary Fund (IMF) and the global monetary system.
Brics, which originally comprised Brazil, Russia, India, China and South Africa, has now expanded to include Egypt, Ethiopia, Iran, and the United Arab Emirates.
Russian Finance Minister Anton Siluanov, on day 1 of the Brics summit, said the global financial system is controlled by Western countries and that the group, which represents 37 per cent of the global economy, needs to create an alternative.
“The IMF and the World Bank are not performing their roles. They are not working in the interests of Brics countries,” Siluanov said.
Russia had its forex reserves in dollars and euros frozen and its financial system heavily hit by sanctions by the West after it invaded Ukraine in February 2022. The country is cut off from international capital markets.
“It is necessary to form new conditions or even new institutions, similar to the Bretton Woods institutions, but within the framework of our community, within the framework of Brics,” Siluanov added.
But what do we know about this proposed payments system?
Let’s take a closer look:
According to CoinTribune.com, the system is known as BRICS Pay.
It would use infrastructures already in place in Brics nations – for example the Mir network in Russia and the Unified Payment Interface (UPI) system in India.
The outlet quoted Siluanov as saying that it would “use blockchain to validate transactions and ensure efficient payment systems.”
He added that it would be “based on advanced technologies, allowing faster and cheaper foreign commercial transactions, without external interference.”
As per ETV Bharat, BRICS Pay would be on the lines of Europe’s Society for Worldwide Interbank Financial Telecommunication (SWIFT) network and India’s UPI.
It would let members of Brics make and receive payments in their native currencies including the Russian rouble, the Chinese yuan, the Indian rupee, the Brazilian real, and the South African rand.
It would allow users to convert between these currencies effortlessly – thus making cross-border payments more efficient.
“The Bretton Woods-era global financial system is undergoing a significant transformation,” the BRIC Pay website states. “We are witnessing rising global debt, increasing wealth inequality, and the fragmentation of trade and finance systems. Our goal is to ensure equal access to financial technologies and global wealth, providing everyone with the opportunity to reach their full potential. Today, we begin building a new, fair, and decentralised financial system for the future.”
“High-speed deployment, scalability, decentralisation, and interoperability are achieved through the creation of distributed networks for transmitting both payment information and liquidity,” the BRICS Pay website states.
CoinTribune.com quoted Valentina Matviyenko, president of the Russian Federation Council, as saying, “BRICS Pay is no longer just an idea, it is a concrete project that is rapidly advancing.”
As per Bloomberg, Russia has also proposed establishing a network of commercial banks.
The report put out by its Finance Ministry, the Bank of Russia and Moscow-based consultancy Yakov & Partners, has said that these banks would deal in local currencies and form direct relations between central banks of different nations.
The “multicurrency system” will need to “ring-fence its participants from any external pressures such as extraterritorial sanctions,” the report stated.
It further contended that Washington is not always aligned with the interests of other participants” in the global financial network.
The plan also calls for establishing centers for mutual trade oil, natural gas, grain and gold and other commodities, as per Bloomberg.
Moscow is also pushing to utilise distributed ledger technology (DLT) or a new multinational platform which will allow tokens to settle transactions.
“The key advantage of utilizing DLT settlement model is the elimination of the credit risk” accompanying the conventional banking set-up, the report stated.
Why is Russia pushing this system?
As per Cointribune.com, this is part of Russia and China’s de-dollarisation strategy.
This looks to reduce the importance of the US dollar as a global reserve currency.
In 2022, the dollar accounted for 58 per cent of international payments outside the euro zone.
Coingeek.com also noted that Russia recently legalised using digital assets to make cross-border payments for local businesses that no longer can access SWIFT.
Russia is also building two national digital asset exchanges in Moscow and St Petersburg.
The outlet quoted Russia’s Foreign Minister Sergey Lavrov as laying out the rationale for BRICS Pay thus, “Many are attracted by the fact that payment platforms are being developed within Brics, which allow trading, investing, carrying out other economic operations without being dependent on those that decided to weaponise the dollar and the euro.”
The Bloomberg report also said that such a system would bestow other advantages on the Brics nations.
It claimed that DLT could also bring down processing times and costs due to the lack of correspondent entities and compliance checks.
It claimed around $15 billion could be saved per year if even half of cross-border transfers used such a model, as per Bloomberg.
Experts say this could potentially be a game-changer.
The piece in CoinTribune.com called the development a “significant milestone in the BRICS de-dollarisation strategy.”
“If this blockchain-based cross-border payment system manages to deliver on its promises, it could not only redefine trade between these nations but also threaten the dominant position of the dollar on a global scale. In the longer term, BRICS Pay could become an indispensable solution for many countries wishing to break free from American influence on international trade. However, it remains to be seen whether this initiative will succeed in establishing itself and disrupting the current global financial order,” the piece argued.
Russia’s central bank Governor, Elvira Nabiullina, has previously talked about a Brics Bridge payments system, which would link member countries’ financial systems, but progress has been slow.
“The Russian Finance Ministry and the Central Bank of Russia together with BRICS partners are working on the BRICS leaders’ report on now to upgrade the international forex and financial system. It will contain a number of initiatives and recommendations. Consideration of this report may result in creating a BRICS multilateral digital payment platform (BRICS Bridge), which will help bridge the gap between the financial markets of the BRICS member countries and increase mutual trade,” Matviyenko said in July at the Brics Parliamentary Forum in St Petersburg.
She said the system would be “immune to political pressure, abuse and external sanctions interference.”
She added that the system would use digital currencies of the Brics central banks, and their exchange rate will be tied to the value of national currencies.
“In addition, this digital settlement and payment platform will be decentralized, that said, no participants will be able to restrict the activities of others. If the Russian-proposed initiative is approved, the Brics countries will have to conduct coordinated legislative work to put a national digital currency into circulation and use it in cross-border settlements,” she added.
The only financial institution the Brics countries have established so far is the New Development Bank, created in 2015 to finance infrastructure and sustainable development projects in Brics members and other emerging economies.
Russia has recently also experienced delays in international transactions with its trading partners, including member countries, as banks in these countries fear punitive actions from Western regulators.
With inputs from agencies
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