BRICS is a multi-country organization which is designing an alternative global payment system to the US Dollar. In 2009 the five founding countries, Brazil, Russia, India, China and South Africa (BRICS) began to formally collaborate to unseat “the economic hegemony” of the US fiat currency in international trade. Fourteen years after its inception the level of participation has been mixed, but we thought because of the implications of this organization it is worth keeping up to date. There are now over thirty countries which either have or expressed interest in joining BRICS and among the more notable is Saudi Arabia, Turkey, Iran, Mexico and Argentina. Please let us explain.
The founding members of BRICS represent over 25% of the world’s economy (mostly China) and 45% of the global population. Yet, frustration and grievance regarding the structure of the world economy which has been dominated by and engineered to serve western interests exposes BRICS members to the influence of the G7, The World Bank and International Monetary Fund. Economic sanctions imposed by the US and its allies have caused considerable hardship to countries like Russia and Iran. One of the tools the west has is an “off switch” by shutting down access to the international financial messaging service, SWIFT, to any country subject to restrictions. The results can be devastating, but BRICS is trying to build a work around.
The US Dollar still accounts for close to 60% of the world’s currency reserves and remains global trade’s fiat of choice. However, post BRICS establishment and the Ukraine invasion, China settles 90% of its trade transactions with Russia in either Yuan or Ruble. What’s more, China now settles 53% of all trade in the Yuan, which is a dramatic step up over the last twenty years. The higher the percentage of Yuan based transactions the less frequently the US Dollar will be used as well as the west’s payment systems. That is bad for legacy based payment services. Advocates of BRICS cite lower foreign exchange fees and faster transaction times. Russia and China have made no secret of their push for a “sanction proof” trading system, which now includes The New Development Bank (alternative to IMF), development of a common currency and use of digital currencies where appropriate.
Too soon to cry wolf, but we are watchful, especially as some other large international players have expressed interest in this alternative payment solution.
