BRICS+ Summit 2024 explores alternatives for cross border payments
Emphasis on local currencies to reduce dependency on the West
The 16th BRICS Summit at Kazan in Russia, that concluded on Wednesday, marked a significant turning point for the alliance, which now includes five new members, namely Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. One of the key areas of discussion centred around enhancing trade through local currencies and exploring alternative financial infrastructures, in order to reduce reliance on Western financial systems.
During the 16th summit and the first since Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE joined BRICS, a coalition of mainly developing countries and Russia, leaders discussed boosting intra-BRICS trade using local currencies and exploring new financial infrastructures.
They also agreed to study the feasibility of an independent cross-border settlement system in order to reduce their dependence on the current system that is dominated by the United States.
BRICS is an informal organisation that was formed by Brazil, Russia India and China in 2009. South Africa joined the grouping in 2010.
The group held its latest summit, the 16th, at Kazan in Russia, and for the first time, the meeting included leaders from its five new additions, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. The meeting of the organisation, which now represents about half the world’s population and more than a quarter of the world’s domestic product, focussed on establishing a more independent economic system and less reliance on the western financial structures.
The leaders of the member nations also explored possible alternatives to the US Dollar in cross-border transitions which involves endorsing local currency for cross border payments, or even introducing a common currency to integrate the financial markets and establishing infrastructure for local currency settlements, an idea that has been bought up in the past as well. In addition, launching a rival to the SWIFT international payment system was high on its summit’s agenda in Russia this year.
“We recognise the widespread benefits of faster, low cost, more efficient, transparent, safe and inclusive cross-border payment instruments built upon the principle of minimising trade barriers and non-discriminatory access. We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners,” states the Kazan Declaration, which was issued at the end of the summit.
During the summit, Russian President Vladimir Putin, the host of the summit, cleared the air by stating BRICS nations do not completely reject the US Dollar but are preparing alternatives if access to it continues to be restricted. He also voiced concerns regarding the use of USD as a political weapon.
“The US Dollar remains the most important tool in global finance but using it as a political weapon undermines trust in the currency. If they block us, we will find alternatives,” Putin said during the Summit.
Unconfirmed reports also suggest that a symbolic banknote of the BRICS currency featuring flags of all member nations was also unveiled at the Summit. A picture of the Russian President holding the note has been doing rounds on social media platform X, formerly known as Twitter, and has also been shared by numerous media outlets. Reports also suggest that the BRICS banknote would be called a “unit”.
Earlier this month, The Jerusalem Post reported that the BRICS banknote will be ‘40 pc backed by gold and 60 pc by reserves in member currencies’.
However, no formal announcements have been made in the regarding the launch of BRICS currency.
Challenges ahead
While the endorsement of local currencies for cross-border transactions is a bold initiative by member nations, the path to effective implementation remains fraught with challenges. Critics point to significant political, strategic and commercial differences among members and highlight the alliance’s struggle to clearly define its purpose.
Divergent geopolitical ideologies and historical regional conflicts, such as Indo-China tensions, which have eased recently after five years of roadblock, could hinder economic growth and increase internal pressures within the group.