As the annual BRICS Summit takes place in Kazan next week, talks about a possible gold-backed digital currency and a new BRICS payment system are gaining greater traction. BRICS members have bounced this idea around intermittently since the 2010s but have picked up on the rhetoric since being crushed by so many U.S. sanctions in 2022.
BRICS Payment Solutions: A Closer Look at the Proposal
There are several concepts of how a BRICS cross-border payment system might look, distilled here into four main proposals:
- An international network of commercial banks to settle payments in local currencies.
- Direct connections between the central banks of BRICS countries, again using their national currencies.
- Centers for trading commodities like gold, oil, gas, and grain directly.
- A settlement-based digital ledger system that is supported by Central Bank Digital Currencies (CBDCs) and tokens issued based on digital currencies.
Based on this analysis, the paper particularly concludes that DLT is the best solution. Some of the benefits of DLT include elimination of intermediaries along with compliance checks they prompt, accelerates transactions, and lowers transaction costs as well. While the paper never claims that such a system is being constructed, with Alexander Bubakov’s recent comments to Russian media, the Kazan Summit promises much in terms of interesting points to ponder.
SEE ALSO: Best Ways to Store Bitcoin: 5 Proven Methods
Rivalries and Alliances: The India-China Dynamic
Although there is no technological limitation in establishing a BRICS payment system, the political structure of the alliance is complex. BRICS originated with Brazil, Russia, India, China, and South Africa but has gained new members, such as Iran, Argentina, Egypt, Saudi Arabia, the UAE, and Ethiopia. These nations always have conflicting objectives.
Take, for instance Argentina. Its newly elected President, Javier Milei, is radically anti-left and, therefore a competitor of Brazil and China. Argentina is experiencing an inflation of 211.4% in 2023, and with that, the dollarization program comes laser-sharp and with it, the killing of the Argentine Peso. This government will not be interested in any attempt to undermine U.S. financial might.
Next is India and China. And they trade so much – $135.98 billion in 2022 – although much too weighted in China’s favor. The border tensions don’t help, either. For instance, there was the deadly clash over the Galwan Valley in 2020. With India’s economy still booming and China’s slowing, this is one that could intensify.
The Impact of Oil Politics on BRICS Stability
Then there are the Islamic countries in BRICS. Saudi Arabia and the UAE are major petroleum producers and have been less hot-headed than the ruling fundamentalist regime of Iran. Their attempts at reconciliation with the state of Israel have put a strain on relations with Iran, which issued warnings both countries concerning these accords. War between Iran and Gulf Cooperation Council neighbors will send oil prices surging much more intensely, which is a threat China, an oil importer, would do well to watch out for.
Finally, there is Russia. Since Ukraine was invaded in February 2022, it has been widely sanctioned and even Chinese companies have withdrawn from Russia out of fear of getting secondary sanctions. Some of the companies that retreated from some of their operations in Russia include Huawei, while Sinopec just withdrew from a major oil and gas project. If such closest allies are withdrawing, then something tells the other BRICS nations will not move in a hurry to come to its rescue.
Therefore, although the technology for setting up a payment system under BRICS and currency is there, success is far from guaranteed. The interests of BRICS countries are multiple and usually contradictory or even mutually opposed in some aspects.
SEE ALSO: Cryptocurrency Mining: The Backbone of Blockchain Networks and How It Works
