BRICS Nations Advance Plans for Dollar-Alternative Payment Systems & Currency

TLDR:

• BRICS nations aim to reduce US dollar dependence through new financial systems and potential new currency
• Russia’s Deputy FM states BRICS seeks sovereignty, not anti-Western stance
• BRICS expanded to include 5 new members in 2024, with 13 additional partner countries
• Potential BRICS currency could be backed 40% by gold, 60% by local currencies
• BRICS Bridge payment platform being developed as SWIFT alternative

The BRICS economic alliance is taking concrete steps toward establishing alternative payment systems and potentially a new currency, according to recent statements from senior officials.

These developments come as the expanded bloc, which added five new members in January 2024, seeks to reduce reliance on the US dollar in international trade.

Russian Deputy Foreign Minister Mikhail Bogdanov explained that member nations are pursuing these changes to “strengthen the sovereignty of our countries” and move away from dollar dependency. Speaking to Tass publication, he emphasized that while BRICS is seeking alternatives to Western-dominated systems, the initiative is “not anti-Western.”

The alliance has seen major expansion in 2024, with Egypt, Iran, the UAE, Saudi Arabia, and Ethiopia joining as full members. Additionally, 13 nations, including Algeria, Belarus, and Nigeria, have signed on as BRICS partner countries, demonstrating growing interest in the bloc’s financial initiatives.

At the 16th BRICS Summit held in Kazan, Russia, from October 22-24, 2024, Russian President Vladimir Putin displayed what appeared to be a prototype BRICS banknote. However, he clarified that the goal isn’t to abandon the SWIFT system entirely but rather to develop alternative methods for using local currencies in transactions between BRICS countries and their trading partners.

A key development is the BRICS Bridge multisided payment platform, which Kremlin aide Yury Ushakov described in March 2024. This blockchain-based system aims to connect member states’ financial systems using payment gateways for settlements in central bank digital currencies.

The proposed BRICS currency, known as the “Unit,” could be backed by a combination of gold and local currencies. According to New Development Bank President Dilma Rousseff, preliminary agreements suggest a structure of 40% gold backing and 60% local currencies from BRICS+ countries.

Current dollar dominance in global trade remains strong, with the US currency used in approximately 88% of currency exchanges and 59% of foreign currency reserves held by central banks. However, changes are occurring – in 2023, one-fifth of oil trades were reportedly conducted using non-US dollar currencies.

The combined central bank gold holdings of the original BRICS nations plus Egypt account for over 20% of global central bank gold reserves. Russia holds 2,335.85 metric tons, China maintains 2,264.32 metric tons, and India possesses 840.76 metric tons, placing them among the top ten holders of central bank gold reserves globally.

Project mBridge

A parallel initiative, Project mBridge, is also gaining traction. This system involves collaboration between multiple central banks, including those of China, Hong Kong, Thailand, and the UAE, with Saudi Arabia recently joining. The platform reached its minimal viable product stage in June 2024, enabling real-value transactions and compatibility with the Ethereum Virtual Machine.

Challenges

Technical implementation of these systems faces several challenges. The BRICS payment platform must ensure convenience for governments, individuals, and businesses while maintaining cost-effectiveness. The proposed currency would require extensive preparation, including establishing new financial infrastructure and reaching agreements between member nations.

Current global economic conditions are influencing these developments. US sanctions on Russia and Iran have prompted these nations to seek alternative financial arrangements. India recently declined to use yuan for oil payments to Russia, highlighting the complexities of moving away from dollar-based trade.

The Atlantic Council’s GeoEconomics Center reported in June 2024 that despite these initiatives, the US dollar’s position as the primary global reserve currency remains secure in the near and medium term. Their “Dollar Dominance Monitor” indicates continued US dollar dominance in foreign reserve holdings, trade invoicing, and currency transactions globally.

The ongoing 2024 US presidential campaign has brought additional attention to these developments. Former President Donald Trump has pledged to impose strict tariffs on nations moving away from the US dollar as the global currency, particularly targeting China with proposed tariffs of 60 to 100 percent on imports.

At the latest BRICS Summit, members adopted the Kazan Declaration, outlining their stance on global issues and regional conflicts. The declaration reaffirmed their commitment to fostering a more integrated financial system among member nations, with emphasis on local currency transactions and cross-border payment structures.