Currently accounting for nearly 60% of global currency reserves, the US has benefited immensely from its currency’s elevated status. Brics Pay could change that, especially with its emphasis on financial sovereignty.
Given that it took place in the final days leading up to the US election, it shouldn’t be surprising that the Brics Business Forum fell a little under the radar.
But the summit, which took place in Moscow in mid-October, came with an announcement of a new cross-border payment system that could have a huge effect on the international money transfer landscape.
Called Brics Pay, the system is based on blockchain and digital currencies and was first conceptualised in 2018.
While there was initially some doubt as to whether it would come to fruition, several factors, including the expansion of the multinational grouping earlier this year, make it now closer than ever to a full public launch.
In fact, Brics Business Forum attendees were given cards pre-loaded with the equivalent of R500 in rubles, which could be used at various points around the conference venue so that they could see first-hand how the system works.
But what does Brics Pay mean for international money transfers, not just between Brics countries but also for the global international money transfer space? While it’s difficult to make exact predictions, particularly given today’s uncertain geo-political environment, we can talk about some of the more realistic possibilities, both positive and negative.
Before looking at what those possibilities are, it’s worth understanding what Brics Pay is looking to disrupt.
Today, about 90% of global payments are made through the SWIFT system. Established in 1973, SWIFT is more accurately a messaging network with an ownership structure that’s adjusted every three years.
This ensures that ownership is based on volume of activity and geographical diversity rather than being concentrated in a small band of organisations and geographies.
While SWIFT has been critical in driving the explosion of global trade over the past 50 or so years, it does have several problems and vulnerabilities.
Particularly concerning is its vulnerability to cyberattacks as a consequence of its reliance on a network of interconnected banks. The network is also inefficient and unable to handle instant payments, because SWIFT payments are processed in batches.
Even when people aren’t expecting instant payments, this batch processing can still lead to delays in funds transfers, especially across time zones.
Other vulnerabilities include a complex infrastructure and protocols that can make it expensive for smaller banks and financial institutions to participate, reliance on legacy infrastructure, and limited transparency.
Brics Pay could address some of these issues, while also challenging other aspects of the global payments order.
Let’s start with the fact that Brics Pay is probably the first system with the potential to genuinely compete with SWIFT since its founding.
While even the expanded Brics grouping consists of a relatively small number of countries, it contains 45.2% of the world’s population and 36.7% of global GDP. That’s a solid base to grow from and should push SWIFT to evolve and innovate (which will push Brics Pay to further innovate in turn).
Brics Pay could facilitate faster and cheaper cross-border payments, stimulating trade and investment among Brics nations and their partners. It could also promote financial inclusion by allowing access to affordable and efficient payment services for individuals and businesses alike.
The biggest issue will come with how Brics Pay affects the US dollar. Currently accounting for nearly 60% of global currency reserves, the US has benefited immensely from its currency’s elevated status. Brics Pay could change that, especially with its emphasis on financial sovereignty.
That said, the US is unlikely to give up its position of financial dominance easily. While there haven’t been any official statements from US officials concerning Brics Pay, some have expressed indirect concern about the broader trend of de-dollarisation and the rise of alternative payment systems.
It’s also uncertain how the incoming Trump administration will view the development of Brics Pay. It probably doesn’t hurt then that the architects of Brics Pay have emphasised its interoperability (the ability of different payment systems and financial institutions to seamlessly exchange information and process transactions across borders).
There are efficiencies in the status quo that urgently need to be addressed and Brics Pay could play a part in that.
For that to happen, clear and supportive regulatory frameworks will be essential. It’ll also be important that the architects of Brics Pay understand that it must keep evolving. Even if it’s more secure than SWIFT right now, cybercriminals will catch up.
But, before any of that happens, Brics member states will have to concentrate on building mass adoption of the network among their own financial institutions, businesses and citizens.
Harry Scherzer is the chief executive of Future Forex.