BRICS Pay aims to serve many purposes, like trade and investment, emphasizing the commitment to become an independent financial system.
The BRICS (Brazil, Russia, India, China, and South Africa) introduced BRICS pay to improve economic cooperation and reduce their dependency on the US dollar.
What is the meaning of BRICS Pay?
It is an international payment system led by BRICS, a digital currency platform promoted by the members.
It is like a cross between Bitcoin, a well-known cryptocurrency, and the euro, the currency of the European Union. New Development Bank anchored the idea of ‘BRICS Pay,’ a shared currency issued by BRICS.
New Development Bank would finance projects for AI and e-commerce to enable economic growth in member states and partner countries.
BRICS Pay aims to serve many purposes, like trade and investment, emphasizing the BRICS commitment to become an independent financial system.
The goal is to make the BRICS countries more economically resilient while avoiding the US-dominated SWIFT system.
If national digital currency is adopted, it will bring investment, especially in technology and infrastructure, throughout the Global South.
President Vladimir Putin emphasized the commitment to shared digital currency to reduce the dependency on the US Dollar during the 16th BRICS Summit held in Russia. BRICS countries, especially Russia and China, are motivated to shift financial transactions towards local and digital currencies and achieve their goal of reducing dependence on the dollar.
What are the benefits of blockchain in ‘BRICS Pay’?
‘BRICS Pay’ is a blockchain-based platform that helps create a safe border transaction within the alliance.
Due to its blockchain-based infrastructure, it is a digital service that allows transactions in any currency of the member countries.
Blockchain technology enables a stable infrastructure for international payments, creates a secure and scalable payment system, and establishes a common payment platform to reduce dependence on the dollar.
The goal was to create a digital currency platform that would be an intermediary for payments, including local currencies.
Research on BRICS and blockchain technology stated that BRICS Pay will become a more effective, safe, and inclusive alternative. Digital and blockchain-based payments could be a faster and more affordable way of transacting payments. Integrating blockchain would make the transactions more secure and transparent.
The digital yuan plan of China would be relevant in this situation as BRICS Pay can integrate digital currency, increasing flexibility and satisfying the growing demand for digital financial services.
BRICS Pay is expanding with member institutions like the Industrial and Commercial Bank of China and Bank of China for international transactions. Sberbank of Russia and VTB Bank have integrated it for cross-border payments, and the State Bank of India also has a BRICS Pay mobile app.
Support from banks outside of BRICS, like Standard Chartered in the UK, which recently joined and allowed smooth transactions with BRICS countries.
This development highlights the goal to develop a substitute for the dollar, thereby reducing dependence on the dollar and becoming a robust tool for international financial independence. The expansion of BRICS has led to more transactions in local currencies.
In December 2023, the Payment Association published a research paper about introducing BRICS currency to international trade. The paper states that even though the economies of the BRICS countries vary in structure and performance, there is a significant increase in trade between the BRICS countries.
At the same time, changes in the global geopolitical landscape in recent years, like the Russia-Ukraine war, significantly changed international trade and finance.
What is CIPS?
CIPS stands for Cross-Border Interbank Payment System and is the SWIFT version for China, the international financial communication system.
This alternative payment platform would help settle for cross-border trade renminbi (RMB) payments.
CIPS was launched by the People’s Bank of China (PBOC) in 2015 to help globalize yuan to improve international transactions, reduce costs, and increase the effectiveness of RMB payments.
What are the challenges of BRICS Pay digital currency?
The BRICS countries have diverse economic systems and development, so it is challenging to coordinate their monetary and fiscal policies.
It requires robust political collaboration from all countries to make BRICS Pay successful. Even if the yuan becomes popular, there are worries that China’s exchange rate and financial system will still restrict the expansion of BRICS Pay.
A vigorous financial infrastructure and payment platform would enable the smooth functioning of the new currency. However, the growing cryptocurrency-based platform hinders global finance.
Many regulatory challenges in the BRICS countries hinder full-scale implementation. It should be resolved before aligning the diverse legal frameworks.
BRICS Pay is still in its early stages and would face regulatory and technical challenges from all member countries.
It depends on the BRICS’s willpower to overcome the challenges for the payment platform to work. They should be willing to guarantee platform security and plan in case of rule violation.
If this blockchain technology is widely accepted, it can reshape global finances and change international payments.