The BRICS' Currency Multipolarity
Adding to the emerging fabric
BRICS and Currency Multipolarity: Adding to the emerging fabric
Warwick Powell
Editor's note: Warwick Powell is a senior fellow at Beijing Taihe Institute and adjunct professor at Queensland University of Technology. The article reflects the author's opinions and not necessarily the views of CGTN.
Currency multipolarity is real. It is more a dynamic process than a fixed state. The discussions at the upcoming BRICS+ summit in Kazan, Russia, about a payment system that supports intra-BRICS trade settlements in national currencies – rather than via a third party currency (e.g., USD) – will add to an unfolding set of institutions and technologies that have already underpinned the evolution towards national currency-based trade settlements. These institutions and technologies are themselves anchored by the real economies of value creation and transfer of the BRICS+ member states.
At the BRICS summit in South Africa last year, leaders agreed that BRICS would investigate the development of a BRICS national currencies payment system, for consideration at the 2024 leaders' summit. The Russian authorities, as the 2024 rotating chair of BRICS, have led a process of analysis and options review. A discussion paper prepared by the Ministry of Finance of the Russian Federation, the Bank of Russia and Moscow-based consultancy Yakov & Partners, was recently made available publicly. Undoubtedly, other confidential documents have been prepared for circulation amongst relevant authorities of participating nations.
Based on the discussion paper's content, what can we discern about the possible directions for BRICS+ in terms of a new payment system?
Perhaps the most important thing to note at the outset is that the deliberations have been clearly tempered and measured, without any sense of excessive urgency. That’s despite the fact that the recent weaponization of the post Bretton Woods USD monetary system has highlighted the risks of reliance on this system for trading nations across the world. The capacity of a single nation to capriciously and unilaterally penalize other countries has doubtlessly spurred on the interest and need for alternative platforms. The recent experiences of Russia, Venezuela, Iran and Afghanistan have provided prima facie evidence of what an alternative system needs to have as part of its design ethos and operational DNA.
The changing contours of global trade have underpinned the need for a national currency-based payment system, particularly when the current USD-dominated system has reinforced uneven development and extractive relations between the advanced economies (AEs) and the emerging markets and developing economies (EMDEs). According to the discussion paper, over the past 30 years the share of intra-EMDE trade has grown from 10 percent to 26 percent of the total global volume, and is expected to grow further to 32 percent by 2032. Intra-BRICS trade made up 8 percent of the global volume in 2023, and is projected to increase to 19 percent by 2032. Trade between AEs and EMDEs has fallen from 37 percent in 1995 to 31 percent in 2023. The trend will continue as EMDEs grow at higher rates than the global average.
Conversely, while trade contours have progressively tilted towards the EMDEs, cross-border investment flows remain locked to historic patterns, with 63 percent of the global portfolio and direct investments confined to AE markets and 13 percent flowing to AEs from EMDEs. At the same time, the share of investments from AEs to EMDEs has grown by three percentage points over the past decade. This asymmetric relation between trade volumes and the pattern of investment flows is reflected in the reality that the AEs continue to enjoy the privileges of dollar domination. This has, according to a recent study by Gaston Nievas and Alice Sodano at the World Inequality Lab (2024), resulted in an income transfer from the poorest to the richest nations equivalent to 1 percent of the GDP of the top 20-percent countries, and 2 percent of the GDP for top 10-percent countries, while deteriorating that of the bottom 80 percent countries by about two to three percent of their GDP.
The BRICS discussion paper points to a need for a new payment system to provide security for participating nations, and to mitigate the risk of capricious and unilateral prohibitions. How such intentions can be operationalized remains to be seen, though there are some pointers as to the possible governance architectures and technologies that could be used to deliver such a system. A distributed ledger or blockchain, operated by participating nations’ central banks, has the potential to fulfill the design aspirations of BRICS+, reflecting the high-level ambitions laid out in the discussion paper.
There is, in this set-up, no need for a distinct BRICS currency. This has never been on the drawing board. A blockchain-enabled payment platform can readily accommodate central bank digital currencies (CBDCs), or work with existing national digital financial platforms. A CBDC would not be a prerequisite. A payment platform does not need an intrinsic price discovery mechanism either, though the discussion paper flags this as an issue. Rather, the applicable exchange rate could be agreed by the transacting parties. Sufficient reserves to settle trades remains an issue, but should not be insurmountable, particularly given the fundamental complementarity of the BRICS+ economies and the foundational strength in core products - that is food, energy and raw materials. In response to this issue, the discussion paper mentions that Russia has proposed what is in effect a "clearing union" set-up, harking back to the proposals of John Maynard Keynes during the negotiations at Bretton Woods in 1944.
In any event, annual global trade in goods is approximately $46 trillion with 8 percent being intra-BRICS trade – equivalent to $3.68 trillion. In contrast, global finance in bonds is over $307 trillions par value; global equities markets’ capitalization is over $108 trillion; global derivatives has a notional value of over $635 trillion; and annual settlements of foreign exchange trading is in the order of $1,900 trillion. A shift to national currency-denominated settlement of trade in goods is not going to disrupt the world’s capital markets in the near future, denominated as they are in USD.
An alternative currency to the USD for trade settlements is not, in this context, a major requirement. National currencies will do, and the preservation of currency sovereignty has other benefits. The discussion paper also features expanding the role of the BRICS New Development Bank as a provider of finance in national currencies.
There are already a myriad of bilateral swap arrangements between the central banks of BRICS nations and those of others. A number of alternative inter-bank messaging and payment systems already exist and are in operation, making it possible to bypass the U.S.-dominated systems where necessary or appropriate. Many BRICS+ nations are well advanced with CBDC projects, though a BRICS payment platform design doesn’t have to presuppose digital currencies. And last but not least, the maturation of blockchain technologies for supply chains and ledger operations makes distributed governance possible. This currency multipolarity fabric is already operational to varying extents across the BRICS+ states. That over 90 percent of Russia-China trade today is denominated in either RMB or Ruble and that over 50 percent of China’s trade is now settled in RMB is a testament to the capacity of non-USD denominated trade settlements to take place. There is no turning back.
A BRICS payment system will add to the existing currency multipolarity fabric, with the potential of replacing the patchwork quilt over time. In doing so, such a payment system is likely to be more efficient with lower transaction costs. In this context, BRICS+ can take its time to ensure consensus across its member states, knowing that a national currency-enabled cross-border trading world is already in operation.