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BRICS Pay
Context:
The BRICS nations, led primarily by China and Russia, are developing an independent and decentralised payment system known as “BRICS Pay.”
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- This initiative aims to enable BRICS countries to trade using their own national currencies, thereby reducing dependence on the US dollar.
- In collaboration with their BRICS partners, the finance ministries and central banks of Russia and China are drafting a report outlining recommendations to improve the international financial system.
- This report could lead to the creation of a multilateral digital payment and settlement platform designed to integrate the financial markets of BRICS member states and facilitate increased trade.
SWIFT system
The Society for Worldwide Interbank Financial Telecommunications, is a secure messaging network used by financial institutions to facilitate international money and security transfers. It acts as a messenger between banks, sending payment instructions rather than transferring funds directly. SWIFT does not hold or manage client accounts or assets. The headquarters of the SWIFT is located in La Hulpe, Belgium.
Features
- Use of CBDCs: A key feature of this system is the use of central bank digital currencies (CBDCs) issued by BRICS nations, with their value pegged to national currencies.
- Decentralised: The digital settlement and payment platform is intended to be decentralised, ensuring that no participant has the authority to restrict others’ actions.
- Aligning Legislative Frameworks: If approved by Russia and China, the initiative will require BRICS countries to align their legislative frameworks to implement the system effectively.
- Single Currency: Additionally, discussions are underway about establishing a single currency for BRICS countries, though the trend remains focused on increasing the use of national and digital currencies, including the digital Russian ruble and the digital Chinese yuan.
US Response and Trump’s Warning
- The BRICS plan to establish a digital asset platform for cross-border settlements and explore a new currency alternative to the US dollar has reportedly provoked a strong response from US President-elect Donald Trump.
- He warned BRICS nations, including India, of a potential 100% increase in tariffs if they continued their efforts to reduce reliance on the dollar.
- Trump asserted that should BRICS proceed with their plans, they risk losing access to US markets.
- His warning came shortly after the Russian Senate approved legislation defining the tax framework for cryptocurrencies, a step toward legalising digital assets in Russia.
- Despite Trump’s threats, leaders from Russia, India, and China have yet to issue a response.
- The US’s use of the dollar as a financial weapon through sanctions has prompted both China and Russia to seek alternatives, particularly in light of the ongoing US-China technology war and Western sanctions on Russia due to the Ukraine conflict.
BRICS Pay: A Digital Future
- Since March 2024, BRICS nations have been actively working on developing their digital payment network.
- BRICS Pay, designed to facilitate cross-border transactions using digital assets, is expected to incorporate blockchain technology to ensure security and efficiency.
- The system aims to function alongside a new secure messaging platform, mirroring the role of the SWIFT system currently used for international banking transactions.
- With BRICS Pay, countries including Russia, China, Brazil, South Africa, India, Saudi Arabia, the UAE, Egypt, and Ethiopia plan to create an international payment infrastructure independent of Western influence.
Strategic Impact of BRICS Pay
- Challenge to Dollar: Russia has already approved the use of digital assets in international payments, allowing BRICS countries to bypass Western sanctions through a decentralised mechanism supporting multiple currencies.
- This development is expected to enhance BRICS’ economic influence and accelerate the establishment of a supranational currency, posing a direct challenge to the US dollar’s dominance.
- Trade: One of the core objectives of BRICS is to facilitate trade in national currencies.
- Currently, 95% of trade between Russia and China is conducted in rubles and yuan, strengthening financial stability and resilience against external economic shocks.
- The proposed BRICS digital payment platform is intended to weaken the monopoly of the Western-dominated SWIFT system by introducing an alternative based on digital currency technology.
