BRICS close to develop its own trading system?

Russia is leading the persuasion of the alternate global currency for trade system in place of SWIFT, the current western developed Payment System.

What is SWIFT:

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication.

It is an international communication bridge that facilitates inter country communication and financial transactions, with Dollar being its main currency of exchange.

The financial institutions use SWIFT to securely transmit information and instructions for financial transactions.

It facilitates cross-border payments by sending payment orders between banks in different countries.

Russia, China, among many other countries, claim that the payment system is rigged in favour of western powers, specially the United States.

Claiming it is “weaponized” against countries to in form of sanction, control and keep upper hand in the global economy, influence or pressure countries to act in certain way in many cases.

Leaders in the past have tried to develop their own international currency and payment system and replace the Dollar as the main currency of trade, but were not able to implement.

Libyan ruler Muammar Gaddafi tried to create such a currency in the 2000s, called “Gold Dinar” and gold as its reserve currency, just like the old times.

The trade system would have obsoleted the U.S. dollar, with pan-African nations and Arab nations trading in gold only instead of the Dollar, hence the de-dollarization.

Now, after almost 2 decades, Russia and China are attempting to launch a payment system of BRICS.

What is BRICS:

BRICS was formed on 16 June 2009, with 6 countries, in 2023 Russia announced the inclusion of five new members: Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.

And BRICS is a coalition of countries just like NATO, originally formed by Russia, India, China, Brazil, and South Africa.

The group got extended just this year after 6 more countries became its member, powerful middle-eastern countries like Iran, United Arab Emirates have taken its membership.

Though unlike NATO, BRICS is not a military alliance and currently stands for economic alliance.

In recent news, it was said that, BRICS has called on the Middle East to stop using the U.S.dollar for oil trade settlements.

In April 2024 Russian Federation Council said, there were 40 countries willing to join BRICS.

The Saudi Arabia has been made a member state already alongside Egypt, Ethiopia, Iran, and United Arab Emirates (UAE).

Russia has supported the Pakistan's request to join BRICS recently this year, while news of Turkey wanting to join BRICS also surfaced recently.

BRICS, or “BRICS+” as many calls it, now comprises ten countries.

Currently, BRICS or BRICS+ includes Brazil, China, Egypt, Ethiopia, India, Iran, Russia, Saudi Arabia, South Africa, and United Arab Emirates.

Why alternative payment system in place of SWIFT on the talks?

After Russia invaded Ukraine in early 2022, the U.S.and western countries rushed to impose sanctions on Russia.

This included it to be cut off of SWIFT payment system.

This led to the initial push from Russia to introduce a new trading system alongside China and for the fellow members of BRICS.

This would help lift western influence on countries, as de-dollarization would weaken the U.S.power and influence, countries won't have to keep or maintain Dollars as foreign exchange reserves in order to trade, according to economics experts.

Currently, the U.S. dollar is the most widely used currency in international trade.

Around 58% to 60% of the world's foreign exchange reserves are held in U.S. dollars, according to data from the International Monetary Fund (IMF).

• U.S. dollar is used in 40% to 50% of invoicing and settlements.

Many commodities, including oil and gold, are priced in dollars.

Therefore, countries need dollars to engage in international trade, especially if they import commodities like oil.

Currently, Russia, Iran, China, and other member states in BRICS are facing sanctions imposed by the U.S. and its other western allies.

How would the BRICS Trading System work, if developed:

The new payment system under development would be called BRICS Bridge.

The digital currency would be packed to countries own currency values.

There would not be third party influence, political use of the payment system.

The digital payment system would act as a bridge in multilateral financial markets of the BRICS countries. It would be aimed at increasing mutual trade.

The system will use the digital currencies of the BRICS central banks, and their exchange rate would be determined with the value of the national currencies.

However, news of not all BRICS member countries on board with the idea of developing the new payment system.

Russian president Putin, alongside Chinese President Xi Jinping, looks keen to achieve the alternate payment system and a de-dollarise the trade.

The latest update regarding the same came from a meeting of Shanghai Cooperation Organisation (SCO) held in Islamabad, Pakistan, just last week.

The Organisation was created by China and Russia in 2001.

Talking on the topic Pakistani Prime Minister Shehbaz Sharif said “the growing consensus among member states on the use of mutual currencies for settlements is a promising development.” he added “The SCO interbank union is an appropriate forum to address banking challenges and moving towards settlements in mutual currencies will shield us from global franchise disruptions”

Sharif expressed support for the use of mutual currencies for settlements within the SCO, and pointed that the SCO Interbank Union is an appropriate forum to address banking challenges.

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