As an analyst with over two decades of experience in global financial markets, I find the recent developments surrounding the BRICS payment system intriguing and potentially game-changing. The proposed system, based on digital currencies and blockchain technology, is a bold move aimed at bypassing traditional financial structures, particularly those dominated by the US dollar.
At a recent gathering of the BRICS nations (Brazil, Russia, India, China, and South Africa), which was held in Russia, President Vladimir Putin presented an idea for a novel financial infrastructure devoid of the U.S. dollar. Let’s take a closer look at this proposal.
At the BRICS summit held in Kazan, Russian President Vladimir Putin pointed out that the idea of establishing a common currency isn’t timely yet, as it hasn’t fully matured or become ready for implementation.
He pointed out that creating this kind of currency necessitates a substantial level of economic unification, preferably among economies that are similar in quality and scale. This is something we might see in the future.
Simultaneously, Russia proposed to its BRICS allies the possibility of utilizing digital currencies for investments. Finance Minister Anton Siluanov elaborated that this initiative involves a fresh BRICS payment system encompassing a mechanism for banking-to-bank financial message transmission and a platform for handling digital financial assets.
In simpler terms, President Xi Jinping of China has stressed the importance of BRICS nations collaborating to develop innovative digital platforms. At the heart of his proposed change is a novel global payment system called BRICS Pay, which utilizes blockchain technology and Central Bank Digital Currencies (CBDC).
breaking news: Chinese President Xi Jinping advocates for BRICS to establish a fresh financial system. In other words, he believes it’s crucial to overhaul the global financial structure, and BRICS should take the front seat in shaping this new system that aligns with the significant transformations happening in…
— BRICS News (@BRICSinfo) October 23, 2024
How the new payment system might work
Countries are exploring the idea of employing digital currency that is tied to traditional currencies. If implemented, this would enable central banks to engage directly in international transactions, bypassing regional banks that have access to the U.S. dollar clearing system.
Therefore, no nation can isolate another from the financial sector. Instead, commercial banks will process transactions via their regulatory bodies, eliminating the necessity for direct relationships with international entities.
In October, Russia’s Ministry of Finance and Central Bank unveiled a plan to construct a system reminiscent of the one they’ve taken inspiration from – an experimental bridge payment platform developed jointly by the Bank for International Settlements (BIS) and central banks in China, Hong Kong, Thailand, and the UAE. According to The Economist, this venture is modeled on the aforementioned collaborative effort.
The team members are sharing that they’ve drastically cut down the duration for completing transactions from multiple days to mere seconds, and nearly eliminated transaction fees entirely.
A change of course?
In light of recent global developments, the Russian President’s plan has been adapted to the evolving circumstances. For quite some time now, the idea of a unified BRICS currency has been under discussion, but digital advancements have significantly transformed the landscape during this period. Russia is already experimenting with a digital ruble for everyday transactions, and soon it will be implemented in federal budget payments as well.
Based on reports from Russian news sources, shifting to digital assets is expected to lower transaction costs and boost annual bank earnings by approximately $81 billion. This initiative aligns with Russia’s push for the benefits of a digitally-focused government.
To bring about the project’s execution, it’s essential to establish communication among various payment systems across multiple nations, address queries regarding digital currency exchange rates, and design a system similar to the International Monetary Fund.
How Russia bypasses sanctions through cryptocurrencies
If past trade limitations often caused severe financial difficulties for countries, the scenario has grown more dynamic due to the advent of the Internet and cashless transactions. As blockchain and cryptocurrencies have emerged, further possibilities have arisen to circumvent restrictions.
As a researcher, I find myself examining the role of Tether (USDT), a stablecoin pegged to the U.S. dollar exchange rate, in shaping a financial system that transcends Washington’s immediate influence. This decentralized platform, in essence, serves as an alternative to the traditional system, emulating some of the functionalities associated with the U.S. dollar. Moreover, it offers a potential avenue for countries to navigate around U.S. sanctions.
Based on findings by Chainalysis, multiple nations under sanctions, including Russia, employ various strategies to sidestep or bypass international financial restrictions.
Putin urged Russia not to overlook the current opportunity for controlling digital currencies, highlighting their increasing significance in international transactions and potential for lessening dependence on the US dollar.
Chainalуsis report
The report emphasizes that the country is actively developing infrastructure for using cryptocurrencies in international trade to bypass Western restrictions. Russia’s Central Bank is leading this process and overseeing the testing of transactions with digital coins.
Moreover, it’s predicted by experts that centralized cryptocurrency exchanges in Russia could start handling cross-border transactions shortly. It’s possible that local officials might make use of platforms like Garantex, either overtly or covertly.
The West is trying to stop Russia
As a financial analyst, I’m closely monitoring the surge of cross-border transactions using stablecoins. In response, the U.S. Treasury Department is advocating for expanded authority over foreign cryptocurrency exchanges. This move aims to establish tighter controls and prevent these platforms from being used as avenues for sanctions evasion, even those linked to entities like Russia.
Before the Senate hearing concerning strategies against illicit financial activities, U.S. Deputy Secretary of the Treasury, Adewale Adeyemo, pointed out that Russia has been progressively adopting non-traditional payment systems such as stablecoins as a means to evade sanctions.
As a crypto investor, I’ve come across reports by Bloomberg suggesting that authorities in the U.S. and U.K., among others, have been scrutinizing cryptocurrency transactions totaling over $20 billion. The intriguing part is that these transactions allegedly transpired through the Russian crypto exchange, Garantex, utilizing Tether (USDT).
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2024-10-25 15:24