BRICS Countries Innovate with a New Local Currency Payment System

BRICS nations are devising a payment system using local currencies to counteract the dollar’s monopoly, a development poised to shift global financial dynamics.

At a Glance

BRICS is working to reduce reliance on the US dollar by promoting local currency use.
Russia is leading efforts to bypass Western financial systems.
The initiative could challenge the current dollar-dominated global trade.
Despite efforts, most BRICS transactions remain dollar-based.

BRICS Push for Dedollarization

The BRICS nations, comprising Brazil, Russia, India, China, and South Africa, are exploring a new cross-border payment system utilizing local currencies. The initiative aims to form a powerful network devoid of US dollar dependence. Russia, heavily sanctioned after its removal from the Swift system, leads this movement to strengthen financial autonomy and reduce vulnerability to external economic pressures. The proposal includes connecting central banks using distributed ledger technology, thus recalibrating the global financial framework.

Efforts are underway within new BRICS members, such as Iran, UAE, and Ethiopia, to join this system. However, the dollar’s entrenched dominance in global trade and finance poses a challenge. Many transactions involving BRICS members are still dollar-denominated, reflecting the dollar’s stability and liquidity. Yet, ongoing efforts aim to replace it with local currencies, particularly the Chinese renminbi.

“Russia Pitches BRICS Payment System Aiming to Break US Dominance

The alternatives include developing a network of commercial banks that can conduct such transactions in local currencies as well as establishing direct links between central banks, according to a report prepared… https://t.co/u7nj828C5l pic.twitter.com/CIYg60P2PJ

— Prodigal (@ProdigalThe3rd) October 11, 2024

Challenges and Strategic Maneuvers

Transiting from a dollar-based system presents noteworthy challenges. BRICS countries must tackle financial infrastructure inadequacies and align with local currencies, such as the growing, albeit limited, global role of the renminbi. There’s a considerable effort toward enhancing financial connections with the People’s Bank of China’s support and the Cross-Border Interbank Payment System. Brazil’s introduction of its first renminbi clearing bank marks a step toward increasing renminbi usage among BRICS members.

Geopolitical tensions also motivate these nations to seek alternatives. Sanctions from the US and Europe drive a broader economic strategy to break from dollar reliance. Suggestions include a commercial bank network for local currency transactions and establishing direct inter-bank links among BRICS central banks, thus circumventing existing global systems.

#BRICS Unveils New Payment System: Key Details Revealed

Joshua Ramos
September 28, 2024

The BRICS alliance has officially announced its blockchain-based payment system while unveiling new details on its development. Indeed, #Russian President Vladimir Putin discussed the… pic.twitter.com/0WP8uUleDw

— Chinasa Nworu (@ChinasaNworu) September 29, 2024

Potential for a New Global Payment System

The BRICS Pay initiative aims to create a SWIFT alternative, enhancing cross-border transaction efficiency. Utilizing blockchain technology for real-time payments, this system expects to boost financial inclusion and efficiency among member nations. Over 50 countries have expressed interest in joining, which indicates a potential shift in the global payment landscape, moving from dollar dependence.

While presenting legal, regulatory, and technological hurdles, BRICS Pay could fragment the global payment framework and lessen reliance on the US dollar. However, the dollar’s current standing in international commerce and as a reserve currency makes immediate dedollarization unlikely. Nonetheless, the drive toward monetary independence by these nations is a significant development to watch.