22 in the Russian city of Kazan to 24 BRICS summit is going to be held by August, There is a strong discussion that there may be a decision to start a concrete system of payment in their own currencies. The information available According to him, at present the objective is to make payment system in dollars SWIFT (Society for Worldwide Interbank Financial Telecommunication). Have to prepare an alternative. So will BRICS offer an alternative to SWIFT?
Remember the story of Panchatantra, in which the entire kingdom of a king was facing destruction due to the terror of a demon. The demon used to kill and eat one person every day. Then the king announced that whoever kills the demon, he will marry him to the princess – i.e. his daughter (of course this sentence is patriarchal, but our traditional society and the stories related to it have been like this). But to face the monster was to risk one’s life! So no one was getting ready. Meanwhile, a poor young man thought what comfort is there in his life anyway! So why not take this risk! He decided to take this risk.
While he was going towards the monster’s hideout, he met a witch on the way, who was also troubled by the monster. He told the young man that the life of the demon resides in a parrot, so no matter how many attacks are made on the demon, nothing will happen to him.
The witch also told the parrot’s whereabouts and the way to catch it easily. So the man caught the parrot. When he went in front of the demon with the parrot, the demon showed an attacking attitude. But in the meanwhile that person broke one leg of the parrot, and the demon also broke one leg. Then he broke the other leg of the parrot, then both the legs of the demon were broken and he fell on the ground. Then the young man twisted the parrot’s neck, with which the monster died.
Now consider replacing the monster with America and replacing the parrot with the American currency dollar. America was once the largest economic superpower in terms of productive economy. By taking refuge in neo-liberalism and participating in the race for maximum financialization of the economy, it itself destroyed this strength. By the way, America is still the largest military power in the world. But the life of that military power resides in the global dominance of the dollar.
Being the currency of global trade, it is currently mandatory for every country to keep dollars in its foreign exchange reserves. Countries that have more dollars than they need for trade payments due to their export power invest them in treasury bills/bonds of the US government, the central bank there, or companies. In this way, every country transfers a large part of the value that it creates in its economy to America. Due to this process, America is able to run a deficit economy comfortably.
America’s GDP is approximately $24 trillion, while the government debt has crossed $35 trillion. Apart from this, the unfunded liabilities of the US government have exceeded 95 trillion dollars. Had it been any other country, it would have been forced to default long ago. But the situation in America is different. As Valéry Giscar Destan, the then Finance Minister of France (who later became President) said in 1960, this is an exorbitant privilege given to America under the international monetary/financial system created after the Second World War. .
There is a general understanding that the day this facility ends or at least gets limited, it will become difficult for America to run a deficit economy and fund its more than seven hundred and fifty military bases around the world. In fact, due to this facility, America has been successful in imposing economic sanctions on various countries. Through this medium it has managed and controlled the foreign priorities of various countries.
But the policy of applying this method to every disagreement is now costing him dearly. This has inspired the sanctioned countries as well as those countries to look for an alternative to the dollar in international trade, which feel that in the future, whenever their policies do not agree with America, they will face sanctions. Not only this, as America did in the case of Iran, Venezuela and now Russia, the money held in dollars of those countries will also be confiscated.
Due to this phenomenon, efforts to trade away from the dollar (DE dollarization) have become a much-discussed term today. Different countries have made bilateral agreements for business payments in mutual currencies. Russia (out of compulsion) and China (as a precaution) appear to be at the forefront of this effort today. Now 90 percent of the value of mutual import and export between the two countries is being paid in ruble-yuan.
Despite this, there is still no multilateral system under which different countries can concretely adopt DE dollarization. Last year, when the summit of BRICS countries was held in South Africa, the member countries had entrusted the responsibility to their central bank officials and finance ministers to prepare a blueprint for such a system. At the same time, it was decided to give membership of BRICS to six other countries, out of which four countries (Iran, Egypt, Ethiopia and United Arab Emirates) have so far formally become part of BRICS. After that BRICS is now known as BRICS Plus. (Saudi Arabia has postponed its decision on the invitation, while in Argentina, after the change of government, new President Javier Millay declined the invitation to join BRICS.)
Now that the BRICS summit is going to be held in the Russian city of Kazan from 22 to 24 August, the discussion is in full swing that there may be a decision to start a concrete system of payments in their currencies. According to the information available, the aim at present is to create an alternative to SWIFT (Society for Worldwide Interbank Financial Telecommunication), a system of payment in dollars. Swift includes more than 11 thousand banks around the world, in which if any money transfer takes place, this process is completed within seconds and the concerned persons get the information through messaging. So will BRICS offer an alternative to SWIFT?
Some indication of BRICS’s preparedness in this regard comes from a document presented by the Russian Finance Ministry and the Bank of Russia, the Central Bank of Russia. (BRICS_Research_on_IMFS_20241008.pdf (pdfupload.io)) It is not yet clear whether the BRICS countries will accept the arrangement included in this document or not. Decisions in BRICS are taken by consensus. That means opposition from any one country can stop the decision there. There are definitely some countries in BRICS Plus, which may be making bilateral agreements with many countries to expand international trade in their own currency, but they do not want to be seen openly challenging the supremacy of the dollar. India is prominent among these countries. Therefore, it is not certain that the proposal prepared by Russia will be approved.
But we should see this effort as a sequence. Just two and a half years ago, creating an alternative to the dollar was only a matter of academic discussion. But this topic came on the agenda of the Global South after the reaction of the US and other Western countries to Russia’s decision to launch special military action against Ukraine in February 2022. These countries imposed hundreds of sanctions on Russia and excluded it from the SWIFT system. Along with this, about 300 billion dollars of his foreign currency kept in American and European banks was confiscated.
As a result, DE dollarization in BRICS was discussed for the first time during the summit held in South Africa last year. Then, since no blueprint was available, the BRICS countries formed a committee to prepare such a blueprint.
This time, Russia, the host of BRICS Plus, has also presented a blueprint from its side. Under this, the proposed system has been named IMFS i.e. International Monetary and Financial System. According to this,
There is no intention to issue any new currency at present. Earlier there was talk that BRICS would issue its own currency, which would be linked either to the price of gold, or to the average price of a commodity basket.
There was a discussion that BRICS Plus would create a currency based on the average value of a basket of currencies of the member countries. But this too is not on the table for discussion at present.
The main discussion right now is on the security, independence, inclusiveness and sustainability of the IMFS.
According to the document, there was no consensus among the BRICS countries on issuing their own currency, but all these countries have agreed to create a messaging system that can replace SWIFT. A system that is also in sync with the domestic payments taking place in these countries.
Russia had suggested the BRICS countries to establish their own central bank. But there are indications that a consensus has not been reached on this.
There has also been no consensus on his proposal that the Central Banks of BRICS member countries should come together and create an international framework, which would carry out the settlement of common transactions.
But Russia’s proposal has received support that the respective central banks of the BRICS countries should create a system of settlement among themselves.
It has also been agreed that all the member countries should review the existing excess amount of dollars (or insist on maintaining excess amount) in the foreign exchange reserves of various countries.
It was agreed that the New Development Bank, also known as the BRICS Bank, should formulate basic principles and set a precedent for member countries to follow.
BRICS Plus countries agree that the International Monetary Fund and its SDR (Special Drawing Rights) system is not working as per the needs of the entire world.
At present, the idea of BRICS countries forming their own credit rating agency has also been postponed. There is an understanding among the BRICS Plus countries that third party sanctions, dependence on the US dollar, data collection issues and the absence of a common analysis framework are the major obstacles in this path.
Actually, what is not important is whether the BRICS countries are able to systematically start a system to end the dominance of the dollar in the Kazan summit or not. What is important is that DE dollarization has today become a concrete phenomenon in the Global South. American analysts, investors and even politicians themselves are accepting this and discussing its possible consequences. (‘Black Swan’ author Nassim Taleb is really afraid of de-dollarization | Fortune).
The second important thing is that serious efforts have started to formalize this phenomenon. The dominance of the dollar has continued for almost eight decades. It has been a global monetary standard in itself for five decades. In this capacity the dollar had reached a special historical position. Those objective conditions have now changed to a great extent. But these conditions have not yet changed decisively. Therefore, efforts to create an alternative to the dollar-based system are not as uninterrupted as they were in 1945, when with the end of the Second World War, America became the sole superpower in the non-socialist world.
Today no single country is in that position. So a group of countries are trying to organize as a separate pole in the world. It is noteworthy that this group is continuously increasing. It has been confirmed that heads of state or government of at least 35 countries will come to Kazan. Among them, there is a special focus on Turkey, which is also a member of NATO. The coming of a NATO member to the summit of BRICS Plus is in itself an indicator of the changing winds in the world.
Eyes are also on whether in Kazan some of the more than 30 countries that have applied for membership are included in BRICS. The latest stance of BRICS Plus is to take cautious steps in this regard. That is, it is not yet decided how much the size of BRICS Plus will increase in Kazan. However, if it is agreed to give membership to some new countries, then BRICS Plus will take the form of Greater BRICS. In this form, Kazan will become an important destination. Even if this does not happen, it is certain that the BRICS agenda will definitely take a greater form in Kazan.