Gathered Wednesday at a summit in the Russian city of Kazan, the members of BRICS adopted a joint declaration calling for the creation of an independent payment system based on their national currencies, a move in response to what they regard as illegal sanctions that are damaging the global economy.
BRICS member countries, which account for about 35% of the global economy, issued the Kazan Declaration, which calls for the “elimination” of “unilateral economic sanctions and secondary sanctions that are contrary to international law.”
The BRICS membership includes the initial five — Brazil, Russia, India, China and South Africa — and expanded when several countries joined this year, including Egypt, Ethiopia, Iran, Saudi Arabia the United Arab Emirates.
Expressing concerns over “unilateral coercive” sanctions that have “disruptive effects” on the world economy, the BRICS members agreed to examine the “establishment of an independent cross-border settlement and depository infrastructure, BRICS Clear.”
In supporting “inclusive cross-border payment instruments,” they encouraged the “use of local currencies in financial transactions between BRICS countries and their trading partners.”
Edward Fishman, senior research scholar at Columbia University and author of the forthcoming book “Chokepoints: American Power in the Age of Economic Warfare,” said, “The BRICS have finally found a unifying mission: circumventing American financial dominance.”
“For BRICS members under U.S. sanctions, namely Russia and Iran, this mission is already a top national priority,” he said. “Others such as China see it as a handy way to insulate themselves from potential sanctions in the future.”
Fishman said the United States should take BRICS initiatives “seriously and move to further solidify the dollar’s advantages” as they “could well bear fruit over the next decade,” although “it’s unlikely that any of these initiatives will make a dent in the dollar’s global role in the near future.”
Circumventing US dollar
In his speech at the summit Wednesday, Chinese President Xi Jinping said “the reform of the international financial architecture” is “pressing,” and he called for “the connectivity” of financial infrastructure among BRICS members and the expansion of the New Development Bank, or NDB.
Headquartered in Shanghai, the NDB was established by the initial five BRICS members in 2015. It serves as an alternative financial institution to the World Bank and the International Monetary Fund.
Tom Keatinge, the founding director of the Center for Finance and Security at the Royal United Services Institute, said China would be inclined to join the new financial system that Russia is advocating.
He said Beijing’s reasons are twofold: “to influence its design to ensure it can benefit” and “to add to its desire to provide counterbalance to the historically unipolar financial system dominated by the United States.”
Keatinge added, however, that the new infrastructure would not be able to easily replicate “the stability, liquidity and convertibility of the U.S. dollar” that a number of other existing bilateral and multilateral payment systems experience.
VOA asked the Chinese Embassy in Washington whether and why Beijing is interested in joining and using the proposed BRICS financial system but did not get a reply.
Citing unnamed experts, China’s state-run Global Times on October 17 said an alternative payment system “may help reduce excessive reliance on the U.S. dollar.”
Sanctions evasion
BRICS’ efforts to increase the use of local currencies are seen as a bid to challenge the global financial system dominated by the U.S. dollar, which accounts for 90% of all currency trading and more than half of international payments.
At the summit, Russian President Vladimir Putin said, “The dollar is being used as a weapon.” He also said the increased use of BRICS national currencies for transactions will “minimize geopolitical risks.”
During a meeting with Putin at the summit on Tuesday, NDB President Dilma Rousseff said the bank was committed to financing the countries of the Global South in their national currencies.
Russian state development corporation and investment company VER.RF signed agreements with China and South Africa to extend credit lines in national currencies, Russian news agency TASS reported on Wednesday.
BRICS Clear, the international payment and deposit platform to ensure increased circulation of national currencies, was proposed by Russia ahead of the summit.
The Russian Financial Ministry, central bank and consulting firm Yakov and Partners earlier in October issued a document proposing BRICS Clear as a platform that would utilize national depository systems “independent of third-party influence.”
Also ahead of the summit, a new cross-border payment system called BRICS Pay was introduced at the BRICS Business Forum held in Moscow on October 17 and 18.
A statement released Tuesday by the American Action Forum, citing an analysis by Jacob Jensen, a data analyst at the think tank, said there are concerns that BRICS Pay would allow participating countries to “circumvent USD as a payment intermediary by replacing it with blockchain technology and an alternative to the SWIFT financial payment system.”
Several Russian banks were banned from the SWIFT messaging system that facilitates global financial transfers shortly after Russia invaded Ukraine in February 2022.
Kremlin spokesperson Dmitry Peskovsaid on Wednesday that the BRICS is not trying to create a system as an alternative to SWIFT, according to Russian TASS.
Despite BRICS’ efforts, no country using an alternative system like BRICS Pay will be immune from sanctions, as such a payment system can be subject to sanctions, said David Asher, a Hudson Institute senior fellow who advised the U.S. government over several years on sanctions evasion schemes.
Ultimately, Asher said, national and digital currencies will end up being swapped into U.S. dollars at the Clearing House Automated Transfer System based in Hong Kong, which he believes should be sanctioned.
