RUFARO MAFINYANI: Brics payment system promises greater sovereignty for members

Given the volatile global geopolitical terrain, the Brics nations — Brazil, Russia, India, China and SA — are navigating a landscape shaped by escalating tensions and shifting economic dynamics. In response to these challenges an intriguing proposition is gaining traction on the Brics agenda: the concept of a Brics alternative payment and settlement system (BAPSS).

Proposing a paradigm shift in economic and geopolitical interactions, BAPSS is positioned as an alternative route for the Brics consortium, aiming to recalibrate financial dependencies away from the dollar and fortify the member countries’ economic sovereignty.

The essence of BAPSS lies in its intent to transcend the traditional norms of global financial transactions. Rather than traversing the familiar path dominated by the dollar, this proposal envisions a framework built on central bank digital currencies (CBDCs) to facilitate seamless cross-border transactions among Brics nations.

Contrary to being in its “infancy” or undergoing a pilot phase, BAPSS emerges as a strategic suggestion, offering a blueprint to reimagine financial interdependencies within the Brics sphere. It advocates for a departure from the prevalent system, challenging the status quo and proposing an innovative avenue for economic interactions among member countries.

Amid prevailing economic uncertainties characterised by inflationary pressures and rising interest rates, BAPSS stands as a formidable proposal with the potential to alleviate strain on businesses by streamlining transaction processes and reducing associated costs. It holds promise in facilitating smoother cross-border fund transfers for consumers, envisioning a more efficient financial ecosystem for the Brics nations.

The proposition extends its significance beyond the original five member countries, emphasising its relevance as the consortium expands to encompass 11 nations. As this expansion unfolds, the need for a robust, independent payment system detached from the US dollar becomes increasingly apparent.

Envisioned as a catalyst for change, BAPSS symbolises hope and possibility for developing nations worldwide. It represents an audacious suggestion, advocating for the possibility of a fairer and more inclusive global financial system.

DiSeFu Advisory is at the forefront of championing this innovative suggestion through its forthcoming white paper titled “Alternative Brics Payment and Settlement System Concept”. This document meticulously outlines the proposal’s potential benefits, addressing challenges and complexities that necessitate resolution before its integration into the Brics agenda.

The proposed structure of BAPSS revolves around a distributed ledger system, leveraging CBDCs issued by each member nation’s central bank. These currencies, tethered to their respective local currencies, would integrate seamlessly through a unified blockchain infrastructure, ensuring secure, efficient and transparent cross-border transactions.

To illustrate its operational mechanics, envision a transaction between an SA buyer and a Chinese seller. The proposed process encompasses a seamless transition: from debiting the buyer’s account to converting funds into CBDCs via the Brics blockchain and crediting the seller’s account, all completed within minutes while preserving each country’s monetary autonomy.

To address potential CBDC deficits, the proposition offers stabilising mechanisms. In scenarios of shortages, a country may opt to borrow from the Brics bank or transparently exchange traditional currencies for CBDCs on the blockchain — an approach aimed at ensuring economic stability within the consortium.

The inherent value proposition of BAPSS resides in its alignment of CBDC value with trade activities within the Brics network. This pioneering approach mitigates vulnerabilities linked to fiat currencies and the prevailing dominance of the dollar, presenting a more accurate representation of economic strength.

The benefits envisaged by the BAPSS proposal encompass reduced dependency on the dollar, augmented financial autonomy, expedited and cost-effective cross-border transactions, and an anticipated surge in trade and investment among member countries.

However, as with any transformative proposal, challenges loom on the horizon. Harmonising regulations, fortifying technological infrastructure and enhancing capacity in CBDC issuance and management stand as formidable hurdles necessitating collective resolution.

In essence, the BAPSS proposition signifies a pivotal milestone in steering away from reliance on the dollar, bolstering financial autonomy and laying the groundwork for a more efficient cross-border transaction framework. Its potential implications extend far beyond the financial domain, fostering prospects for sustainable development, financial inclusion and poverty alleviation within the Brics ecosystem.

• Mafinyani is risk advisory & financial modelling partner at Decentralized Secured Finance, a specialised financial technology & risk advisory firm operating in the Sub-Saharan region.