A ghost is haunting the financial world: BRICS Pay

PASCUAL SERRANO

One of the consequences of Western sanctions against Russia was its exclusion from the SWIFT financial communications system. This system, an acronym for Society for Worldwide Interbank Financial Telecommunication, is an international network of financial communications between banks and financial institutions in which 3.500 members participate. Thanks to it we can make international transfers. It is supervised by a council made up of the central banks of the Group of Ten (Germany, Belgium, Canada, the United States, France, Italy, Japan, the Netherlands, the United Kingdom, Sweden and Switzerland) and the European Central Bank. Its legal headquarters are in Belgium.

It is therefore an institution of international trade regulation under Western control and which has been used as a mechanism for international intervention and sanction. Until a few years ago, monopolized between 80% and 90% of all operations in the sector worldwide, says El Economista. There are currently 11.000 financial institutions and 200 countries registered in this huge network.

Although legally it is an institution operated from Belgium, the reality is that its governance is based on the volumes of activity of its members. That is why it is practically always chaired by an American company and, in fact, today JP Morgan Chase chairs the board, with Lloyds Bank as vice-president. The influence of the United States in the institution is practically total.

This control of SWIFT by the US gives it several strategic advantages. Firstly, it can exclude banks that it wants to sanction, imposing extra costs on them and forcing them to look for alternative methods that are more expensive, less secure and not accepted by all operators, affecting investment and directly damaging its financial system. Russia estimated in 2014 that total disconnection would have an impact of 5% on its GDP. It also allows information to be obtained on all transactions that are recorded. As it is practically universally used, it is possible to follow the 'money trail' to see where sanctions fail (such as those imposed on Russia) and to be able to solve the 'holes' through which sanctioned countries avoid impositions. El Economista also emphasizes.

In recent years we have witnessed the political use of this banking communication system for sanctions. The propium SWIFT system reported that in 2012 Iranian banks sanctioned by the EU were expelled. And in 2022, the expulsion of Russia and Belarus was announced.

The Central Bank of Russia has created a new financial messaging service, the Financial Message Transfer System (SPFS). In June this year, the EU announced that “EU entities operating outside Russia will be prohibited from connecting to the SPFS or equivalent specialized financial messaging services. In addition, EU operators will be prohibited from conducting transactions with entities specifically quoted to use SPFS outside of Russia.” The persecution did not stop.

The international financial communication mechanisms had become a military target. All emerging powers perceived that with the SWIFT system they were at the mercy of the Western powers, who could strangle their international trade relations by simply pressing the eject button on the SWIFT code.

The BRICS understood this from the beginning and created a joint venture between the five BRICS countries (Brazil, Russia, India, China and South Africa) that It was launched in 2018 by the BRICS Business Council among the main priorities of the Annual Report. It announced its own common payment system to be used for any of its five local currencies.

Now, the war in Ukraine and sanctions on Russia have precipitated the final schism between the West and the rest of the world, and it is here that the BRICS are becoming central to a new financial order that needed a new international financial messaging system. This would be BRICS Pay, a payment system designed to facilitate cross-border transactions between the BRICS nations, to start with, in the first phase, Brazil, Russia, India, China and South Africa.

As these nations look to reduce their reliance on traditional Western-dominated financial networks, BRICS Pay would no longer need them and could revolutionize international payments by offering a more efficient, secure and inclusive alternative.

The move is part of a broader effort by the BRICS nations to strengthen their economic cooperation and reduce their dependence on the dollar and other Western-dominated financial systems.

BRICS Pay will be a digital platform that would allow consumers and businesses in partner countries to make payments and transfer funds across borders with ease, precisely what we do now with SWIFT, except that they would not do so under Western domination.

The Russian Foreign Minister Sergey Lavrov said a few days ago He said these payment systems allow countries to manage their economies more independently, reducing the risk of sanctions from the US and its allies. He said the shift is driven by the increasing use of Western currencies as tools of political interventionism and highlighted growing concern among nations about the threat of sanctions from Western powers: “Every country in the world understands that any one of them can end up being a victim of sanctions from the US or its Western partners.”

In his view, BRICS payment platforms offer a viable solution for countries seeking to reduce their exposure to geopolitical risks and maintain autonomy and sovereignty in their financial transactions.

The proposal not only means breaking with SWIFT and its dependence, but will also affect the waterline of dollar dominance. Now these transactions will be carried out in the local currencies of the BRICS or even in a new digital currency that they develop. There will no longer be a need to convert to dollars to make international transfers, costs, times and exchange risks would be reduced because intermediaries are eliminated, and the financial independence of the BRICS would increase. The currency customs police would be left out of this circuit.

Michael Maharrey, Money Metals expert, explained in a specialized media that BRICS Pay does have an indirect impact on the dollar. “A new system could accelerate de-dollarization because SWIFT ultimately serves as a ‘superhighway’ for global trade and SWIFT therefore reinforces the dollar’s ​​role as the linchpin of global trade.”

The damage to the United States is multiple. Let us remember that SWIFT offers Washington another great strategic advantage in war and sanctions. As it is a system of information exchange, according to the Center for Strategic and International Studies (CSIS, by (its acronym in English) "allows monitoring of third-party compliance with sanctions." A key factor in detecting companies and countries that circumvent US impositions. More reasons for most emerging powers to try to shake off the yoke of SWIFT.

The Specialized publications point out that the new system could “not only transform economic relations between the BRICS countries, but also redefine global financial balances.”

The announcement of the creation of BRICS Pay made international financial centers so nervous that the South Africa's finance minister had to come out and reassure them, saying which was not “intended to replace the Swift system”. It is clear that the replacement will depend on each countryIf While South Africa and India have no intention of abandoning SWIFT, Russia and Iran are already out, and Brazil has even expressed its desire to create a common currency. For its part, although China uses SWIFT, the expectations that it will boost the use of BRICS Pay are indisputable, working with both.

After several years of study, it seems that the project will soon become a reality. Valentina Matviyenko, Speaker of the Federation Council of Russia, confirmed that the project is on the right track. "This is no longer just an idea, it is moving forward with concrete action."he declared.

Although at the BRICS summit in Johannesburg on August 22-24, 2023, it was ruled out a common currency among the various members to challenge the dollar, the option of an alternative payment system was seen as perfectly viable and the decision did come out of this meeting firm decision to tackle the project as soon as possible.

More than 50 countries They have already expressed their interest to join this initiative ahead of the 2024 BRICS summit, which is taking place these days in the Russian city of Kazan. Most of them come from Asia, Africa, South America and Eastern Europe.

But the idea can go much further in the medium term. Last May, the governor of the Central Bank of Russia, Elvira Nabiullina, defended before the agency Xinhua that the possibility of a common financial messaging system extending across 159 countries. “We are having discussions on the integration of the different national platforms.” In this regard, lacking “technical preparation,” Nabiullina stated that “when everything is ready we expect an (affirmative) response from them and both SWIFT and the dollar could soon find themselves facing great competition from Russia and our alliance.”

There will certainly be news about BRICS Pay at the Kazan summit.

It is clear that there are many challenges ahead to achieve success in this project. It will be necessary to comply with the national regulations of the different countries, guarantee security in transactions and seek interoperability with existing global systems.

But considering that on the BRICS side there would be more population, more natural resources and more GDP, perhaps then the United States and Europe will realise that they have ended up being the ones sanctioned by being left out of BRICS Pay.

Pascual Serrano He is a journalist and writer. His last book is "Forbidden to doubt. The ten weeks in which Ukraine changed the world”

Provided by VN News Magazine.