BRICS Pay: Geopolitical power shift in international payment transactions?
While the introduction of the digital euro will not take place until 2028 at the earliest, the announcement regarding the introduction of another digital currency is making waves.
This refers to BRICS Pay, a joint effort by the BRICS countries, which were founded in 2009 and 2010 from (B)razil, (R)ussia, (I)ndia, (C)hina and (S)outh Africa. BRICS was originally seen as an alternative to the G7 and was intended to unite the emerging markets in an alliance. However, it has now (partially) outgrown this role and, since 2023, has been joined by Iran, the UAE, Egypt and Ethiopia, giving this alliance 45% of the world’s population and just under 35% of global economic output. The G7 states represent just 10% and 30% respectively. Accordingly, such an announcement carries weight. And should prompt us to categorise the events. Here we go!
What is BRICS Pay?
BRICS Pay is a planned cashless payment system that is intended to simplify transactions between the BRICS countries and at the same time create an independent alternative to Western-dominated payment systems such as SWIFT and currencies (above all the USD, of course). The idea behind this is not just of a practical nature or due to its sheer size, but to consistently strengthen and expand the economic and political sovereignty of the alliance.
In times of global sanctions and geopolitical tensions, especially with regard to Russia and China, it is becoming increasingly important for the BRICS countries to establish their own robust payment system that makes them independent of Western infrastructures. And here we come to the reasons in detail.
Why BRICS Pay at all?
- Sovereignty over payment transactions
Imagine you run a shop and your only cash register belongs to your neighbour – the one who doesn’t like you very much. This is precisely the dependency that many BRICS countries feel in relation to Western payment systems such as SWIFT. Sanctions against Russia and geopolitical tensions with China have further exacerbated this. Anyone who has been excluded from international payment systems quickly realises that it is no fun to suddenly only be able to trade with their own currency and regional partners or to take laborious and cost-intensive detours via third or fourth countries (this is where the newly acquired BRICS partner Iran – which has been subject to a trade embargo since the 1970s, which was tightened even further after the US withdrew from the JCPOA nuclear deal in 2018 – can fully contribute its expertise). Incidentally, this is not entirely new, at least for Russia, as MIR has already begun to break the dominance of Visa and MasterCard since 2015. The fact that MIR translates as world or peace is an interesting side note.
2. Combating US dollar and euro dominance
The US dollar in particular rules international trade – there is no doubt about that. But many BRICS countries are asking themselves: does it have to stay that way? BRICS Pay could reduce the dominance of the dollar, at least in the BRICS countries themselves, by facilitating trade in the respective national currencies. This would mean less pressure from exchange rates, increased sovereignty in financial matters and a destabilisation of the USD, which is also strongly linked to the oil trade.
3. Promotion of digitalisation
Digital currencies are a hot topic, and BRICS Pay could serve as a springboard for the CBDCs (Central Bank Digital Currencies) of the BRICS countries. China is already ahead with the digital yuan, and it is likely that other BRICS countries will follow. BRICS Pay could lay the technological foundation for cross-border transactions with these digital currencies and revolutionise payment transactions in the region.
How does BRICS Pay actually work?
BRICS Pay offers two main approaches: Payments via QR codes in the consumer sector and a B2B solution based on blockchain. Both approaches have potential.
QR code payments
In the BRICS countries, especially in China and India, QR codes have long been an integral part of everyday life. BRICS Pay wants to use this method to facilitate cross-border payments. The advantages are obvious. QR codes are simple, inexpensive and do not require expensive hardware. They offer a flexible solution for spreading cashless payments, especially in emerging markets.
B2B payments
BRICS Pay aims to simplify B2B payments via blockchain technology and make them more secure by enabling fast, direct transactions between companies – without the dependence on Western systems such as SWIFT. The advantage is obvious, as blockchain-based payments offer transparency and security. In addition, direct settlement in the respective national currencies would enable companies to reduce costs and transaction costs.
Do we need to worry now?
Not according to current estimates. History has shown that it is not that easy to create a new payment system or even a currency alliance from scratch. Just look at the euro, which took around 30 years from idea to go-live. And that was about nations that were already organised in an alliance and shared a continent. In contrast, BRICS or BRICS Plus is a very powerful and very large (in terms of land area and population) but also geographically very dispersed alliance that is anything but united on many issues. The individual countries sometimes have very different interests, only the ‘enemy image’ is similar. The significantly lower proportion of democratic countries on average should at least speed up one or two decision-making processes.
The financial markets of BRICS countries such as China, Russia, Brazil and India, as well as potential new alliance partners, cannot (yet) compete globally with the USA, so it could be assumed that the implications of BRICS Pay will be limited to the allied nations in the medium term. However, it should not be overlooked that Saudi Arabia, for example, a heavyweight oil producer, is considering joining the alliance. Turning away from the petrodollar could end in a political super-GAU. However, Saudi Arabia, like other oil producers, is heavily dependent on the Western world’s hunger for oil.
BRICS Pay is currently still under construction and it remains to be seen how seriously the alliance partners will take their plans. The potential impact on the global payment landscape should not be underestimated. However, it is wise to keep a close eye on developments and regularly evaluate potential opportunities and risks.
In the end, BRICS Pay could either go down in history as a revolutionary system that has brought the dollar to its knees as the world’s reserve currency – or it could be just another endeavour that disappears into the drawers of history due to a lack of practicality and competitiveness.
As always, the payment sector remains exciting!