Is BRICS Dodging US Dollar?

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Dollars - Sputnik International
During the last association summit, BRICS countries supported the idea of introducing a single payment system, an alternative to SWIFT, for the subsequent implementation of payments in national currencies.

In an exclusive interview with Sputnik, Director of the Department of Multilateral Economic Cooperation and Special Projects of the Russian Ministry of Economic Development Natalia Stapran said that China was looking with keen interest at settlements in national currencies with its BRICS partners.

The weight of the BRICS countries in world trade has increased significantly. In 15 years, the volume of corporate transactions in the countries of the association has increased 15 times, from $26.5 billion to $388 billion. BRICS account for more than 17% of the international trade volume and more than 20% of global foreign direct investment.

At the same time, the share of settlements between countries in dollars has been decreasing. According to RDIF CEO Kirill Dmitriev, in Russia, for instance, the dollar’s share in foreign trade settlements has decreased from 92% to 50% in five years, while the rouble’s has grown from 3% to 14%.

Staff worker stands behinds national flags of Brazil, Russia, China, South Africa and India to tidy the flags ahead of a group photo during the BRICS Summit at the Xiamen International Conference and Exhibition Center in Xiamen, southeastern China's Fujian Province, Monday, Sept. 4, 2017. - Sputnik International
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Under such circumstances, BRICS countries are thinking about introducing their own payment system, an alternative to SWIFT, which would serve settlements in national currencies. The existing procedure of foreign trade settlements via SWIFT is of concern to many: since SWIFT is controlled by the US, the system can be used as an instrument of political pressure. For example, the United States has already disconnected Iran from SWIFT, which has caused a drop in GDP and exports, higher inflation, and devaluation of the national currency.

Washington periodically threatens to disconnect Russia from SWIFT as well. China was in no hurry for some time with de-dollarisation and transitioning to alternative payment systems. However, the trade conflict with the US has shown that it is very risky to rely on the US financial infrastructure, Director of the Department for Multilateral Economic Cooperation at the Ministry of Economic Development Natalia Stapran said:

“Initiatives such as settlements in national currencies should contribute to trade facilitation. This issue is being actively discussed, but it is not always easy with China. I can see why the Chinese are in no hurry: because they did not really need it. After all, settlements in national currencies are a tool for overcoming sanctions restrictions. As soon as the Chinese felt that this could affect them, when it hinders transactions – they do not think about volumes and turnover, and have shown great interest”, the Russian expert said.

However, China’s own national payment system appeared back in 2015. It is called the CIPS International Payment System. Currently, more than 20 local and foreign banks are connected to it. The system allows making direct cross-border payments in RMB. It is not necessary to open correspondent accounts (often called nostro or vostro accounts – ed. note Sputnik). This reduces costs and transaction time. Russia has a similar solution – System for Transfer of Financial Messages (SPFS). Recently it was reported that India is working on a similar system.

Since the BRICS countries already have experience with their own payment systems, at the last summit in Brazil it was proposed to unite efforts and create a single, alternative mechanism for mutual settlements, Director of the Department for International Financial Relations of the Ministry of Finance of Russia Andrey Bokarev told Sputnik at the Gaidar Forum.

“Our Brazilian colleagues proposed the idea last year in the form of creating a BRICS cross-border payment system. The idea was to minimise the involvement of mechanisms related to the opening of correspondent accounts of our commercial banks and to make the most of the opportunities offered by the national central banks of our countries for such transactions”, Bokarev explained.

“The topic deserves the utmost attention, and I can’t say that we don’t hear enough involved remarks from any of the participants. Another issue is that the topic is not a simple one and requires a whole range of solutions”, he continued.

Assessing the capacity of each national stakeholder, Russia’s International Financial Relations Department Director Andrey Bokarev continued:

“Needless to say, such an issue cannot be solved solely employing efforts or on the initiative of national regulators. There must also be movement from below and interest on the part of the participants themselves. First of all, these are banks and companies in our countries. And there must be a clear demand and interest in creating such systems. Otherwise, it will be a mechanism that will be in little demand”, Bokarev said.

According to the government official, now there is a search for frameworks that are mutually acceptable to all member countries of the BRICS association, which will allow for the formation of a system of settlements.

“From the perspective of the Russian side, one of the first steps could be the creation of a system for the transfer of messages on financial transactions, a SWIFT analogue. Such a system is already used in settlements in Russia and with some of our counteragents. And we are thinking about extending that scheme to all five member states. Next, we will talk about the implementation of all other components of mutual settlements”, he concluded.

According to the Russian Finance Ministry official, the more convenient the SWIFT-alternative settlements systems are, the greater the demand for them among market participants will be. The growth of trade volume is not enough for this; you also need a user-friendly interface. On the bilateral level, the work is progressing.

BRICS Leaders at the 11th Bloc's Summit in Brazil  - Sputnik International
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Back in autumn, it was reported that Russia and China could connect two of their national systems for mutual settlements, bypassing SWIFT. Two systems can be connected via network gateways – hardware and software complexes – for payments between Russian organisations and their counterparts in China. The network gateways would recode payment messages from one payment system format to another. In this way, both parties would operate on a platform that is convenient for them without any difficulties. However, nothing prevents the system from being aligned with other BRICS participants.

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