BRICS dedollarization agenda still has a long way to go

BRICS leaders, including Russian President Vladimir Putin and Chinese leader Xi Jinping, have publicly expressed their commitment to jointly introducing an alternative payment system that would not depend on the US dollar.

Independent analysts, however, question the feasibility of implementing this idea in the near future.

The recently concluded BRICS meeting – Brazil, Russia, India. China and South Africa have discussed ways to establish an alternative to SWIFT, the international payments system. Russia was removed from the SWIFT system after the start of the war in Ukraine in 2022 and has been particularly focused on finding an alternative.

We are studying the possibility of expanding the use of national currencies and settlements and want to put in place the tools that would make this sufficiently safe and secure, Putin said. BRICS will work out a payments agreement with the cooperation of central banks affiliated with the group's member countries, he said.

Analysts say that's easier said than done. But some experts, like Gregory Zerzan, former deputy secretary of the US Treasury Department, have warned of the danger of ignoring BRICS efforts. He explained that this is because its members, some of whom are less friendly toward the United States, seem determined to achieve their goal.

There is still a long way to go before BRICS will one day launch a payment system that could be considered a serious alternative to SWIFT, Eva Seiwert, an analyst at the Mercator Institute for China Studies based in China, told VOA. Berlin.

She pointed out that the Kazan Declaration, adopted this week after the two-day BRICS meeting, was vague even on the softer version called the BRICS Cross-Border Payments Initiative, or BCBPI, which is supposed to strengthen corresponding banking networks. within BRICS. and enable settlements in the local currencies of BRICS members.

The statement said the participation of member countries in the BCBPI would be voluntary and non-binding.

The BRICS plan is being taken seriously in some quarters because China and India have shown it is possible to defy economic sanctions and buy Russian oil using local currencies. Some analysts believe this provision could be extended to oil-rich Iran, which has joined the BRICS club.

At the same time, bankers are not convinced that BRICS has been able to provide a technical support system to create and maintain an alternative to the SWIFT system.

How can currency fluctuations be taken into account if the alternative payment system is implemented? asked Gopal Tripathy, head of treasury at Jana Small Finance Bank based in Bengaluru, India. They could use USD [U.S. dollar] as a reference currency. In this case, the very objective of abandoning the dollar is lost.

Businesses in India, China, South Africa and Brazil may have difficulty making and receiving payments with business partners located in countries outside the BRICS club.

It is not possible to move away from the US dollar unless you create a parallel ecosystem, he said.

Although BRICS does not seem ready to have the necessary mechanism to implement this idea, concerns remain in Washington regarding the dedollarization campaign launched by some countries.

Speaking to the House Financial Services Committee in July, Treasury Secretary Janet Yellen said U.S. economic sanctions had led BRICS to attempt to restart the dedollarization program.

The more sanctions the United States imposes, the more countries [BRICS] will seek methods of financial transactions that do not involve the U.S. dollar, she said.

Washington appears to have changed its view on the subject since July 2023, when Yellen said there was little to worry about.

We have open and highly liquid financial markets, a strong rule of law and a lack of capital controls that no country can replicate, she said at the time.

Brazil, one of the group's members, went further to suggest that a BRICS currency be introduced into the market. But this suggestion was not widely accepted by other members of the group.

A BRICS currency would require major political compromises, including a banking union, a fiscal union and general macroeconomic convergence. Many experts doubt whether a new BRICS reserve currency would be stable or reliable enough to be widely approved for global transactions, according to the New York-based Council. on Foreign Relations said in an Oct. 18 article on its website.