Finance and BRICS
Introduction
BRICS Pay is advancing swiftly: a few years back, you might have seen a viral video of a person buying South African wine in Moscow using the BRICS Pay app; recently, Standard Chartered, a bank based in a non-BRICS member state, incorporated BRICS Pay into their system. However, with the current international affairs such as the escalating rivalry between the BRICS and the West, how will the new payment system impact us in a global context?
Chain 1: What is it?
BRICS Pay is a platform for international bank transfer payments that is an alternative to SWIFT. This digital payment platform is a project that is cooperatively developed by the five BRICS nations. Apart from using Decentralized Finance (DeFi) to facilitate multilateral transactions, it is also backed by blockchain and generates digital tokenized assets, allowing it to incorporate CBDC (Central Bank Digital Currency) technology to create a wholesale digital currency for transactions and settlements between the countries and financial institutions. As for individual consumers and firms, there isn’t a single set currency, allowing them to trade in their respective currencies or the ones that they prefer. To learn more about the technology used click on these hyperlinks: CBDC , DeFi.
All transactions will be processed through the New Development Bank, where the BRICS also fund other development projects. So far, BRICS Pay has been integrated into the member central banks as well as some financial institutions, including the State Bank of India, Russia’s Sberbank and VTB Bank, and China’s ICBC. Apps and online wallets will also be further developed.
Chain 2: Why BRICS PAY
With the BRICS expansion, the group consists of some of the most populous and largest developing economies, therefore according to the project’s official website, the emerging platform can be used by 3 billion people and the transfers can make up to 26% of world GDP. Moreover, this platform provides a more reliable form of bank transfer payments compared to SWIFT. As the most used method of international payments, the SWIFT is said to be weaponized by the West. Countries like Russia and Iran (a new member nation) are banned from the system, therefore by establishing BRICS Pay, members are less vulnerable to such sanctions and disruptions.
Chain 3: Global Impacts
BRICS Pay is a highly efficient payment platform with low transaction costs. Therefore, multilateral trade within the group is incentivized, allowing the BRICS nations to reach mutual economic growth. Along with the expansion of the group that unites the developing world, this puts the developing countries in a place to catch up with the developed, giving the BRICS the ability to rival the G7, changing the world order.
Moreover, as mentioned previously, the use of a new platform makes sanctions less effective. This could lead to humanitarian issues and deviate from global objectives. For example, the SWIFT ban on Russia will have less of an effect on compelling it to withdraw troops from Ukraine, and the independent platform now makes China less prone to sanctions, allowing it to continue to practice forced technology transfer.
Chain 4: Potential BRICS Currency and De-dollarization
In the August BRICS summit, the Brazilian president, Lula, proposed the idea of a BRICS currency. Although the other leaders did not reciprocate the intention for this plan, BRICS Pay can also contribute to de-dollarization. With the benefits of the BRICS and their payment system, many developing nations are attracted to join. Therefore, with the member states trading in their local currencies and the expanding size of the group, more countries are opening up to trade in a currency that is not the dollar. The group primarily pushes the RMB, as China is the largest exporter of the world, and using their currency facilitates trade. Further accelerating de-dollarization, the increased demand for the RMB also helps China sell bonds at a lower yield and effectively borrow at a lower cost.
Conclusion
The financial dimension of BRICS is an important component of the global economy- and it is crucial to have an understanding of its mechanisms. However, USD is still the world’s reserve currency and is involved in 90% of transactions. In addition to this, BRICS Pay still has a lot of internal issues such as the disagreement over the BRICS currency at the August Summit. Nonetheless, the integration of BRICS Pay into some of the world’s most notorious banks speaks volumes about its potential efficacy.
Sources
https://valdaiclub.com/a/highlights/brics-pay-single-payment-system-of-the-brics/
https://www.reuters.com/markets/currencies/what-is-brics-currency-could-one-be-adopted-2023-08-23/
https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp
https://youtu.be/n40w8NCqlFQ?si=Dl-OLpHXYHX0YsEx
https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp
https://www.reuters.com/markets/currencies/what-is-brics-currency-could-one-be-adopted-2023-08-23/
