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A man walks outside a Brics 2024 venue in Nizhny Novgorod, Russia, June 9 2024. Picture: REUTERS/MAZIM SHEMETOV
A man walks outside a Brics 2024 venue in Nizhny Novgorod, Russia, June 9 2024. Picture: REUTERS/MAZIM SHEMETOV

Earlier in 2024, the Brics bloc of nations announced plans for a blockchain-based payments network. Intended as a replacement for SWIFT, which has become the default system for cross-border transactions since its introduction in 1973, the Brics payment network is intended to help member states reduce their dependence on the dollar and enhance their economic sovereignty. 

Of course, there are other motivations too. In a July gathering of the formation, Russian Federation Council speaker Valentina Matvienko said the system would be “immune to political pressure, abuse and external sanctions interference”. However, regardless of the motivation for the proposed digital currency, its momentum has reportedly never been stronger. 

While it will be some time before the network is fully built and implemented, it is worth considering the possible implications for SA. How will it affect trade between Brics member countries, especially in the grouping’s expanded form? What effect will it have on the rand? And is there anything ordinary South Africans and businesses should be concerned about? 

Before attempting to answer those questions, it is worth examining how the proposed network would work. The proposed mechanisms include central bank digital currencies, payment gateways, distributed ledgers and smart contracts.

Under the digital currency mechanism, each member country’s central bank would issue a digital currency (usually referred to as a CBDC), which could be used for transactions within the network. At the same time, a mechanism would need to be established to convert one CBDC into another, facilitating cross-border payments.

With CBDCs in place, a payment gateway could be put in place. This central platform would act as a gateway for transactions between different countries. Additionally, it would allow CBDCs from different nations to interact seamlessly.

Finally, blockchain technology, including a distributed ledger and smart contracts, would come into play. The distributed ledger would record all transactions, ensuring transparency and security, while smart contracts would potentially streamline processes and reduce the need for intermediaries.

Of course, there is the potential for blowback. For instance, nations outside the Brics grouping might decide to punish members for using it, particularly as it would allow for the fairly easy circumvention of sanctions against countries such as Russia and Iran.

That may seem alarmist, but the possibility is real. One need only look at how close SA came to being shut out of a renewed African Growth & Opportunity Act deal when the US suspected it of selling arms to Russia to see how quickly situations can change.

While China is SA’s largest trading partner, Western powers, including the US, Germany and the UK, are also in the top five. The last thing a country with an economy as fragile as SA’s needs is to give those countries any reason to pull back on trade deals. 

If SA were to be punished, even if not overtly, for being part of the Brics payment network, this would undoubtedly have a negative effect on the rand. But what would the effect be if the rest of the world took no issue with the network’s existence? 

In that case there could be some benefits. For instance, a more efficient payment system could boost trade between SA and other Brics nations, leading to increased demand for the rand. A more stable and efficient financial system could also attract foreign investors, increasing demand for the currency.

Should other economic and trade blocs decide to start their own similar networks, it could result in a fragmented global payments system. While larger currencies might be able to survive that, the rand would probably be negatively affected. 

Putting those big picture scenarios aside, a Brics payment network could mean it would be faster and simpler for businesses and ordinary South Africans to make international money transfers. 

What it won’t do is remove one of the biggest barriers to such transfers: the banks most people and businesses use for them. Far too many SA banks don’t operate transparently or in a way that puts customers first when it comes to international money transfers. 

The lack of transparency means people and businesses end up paying far more for each transaction than they should. Meanwhile, the lack of effective customer service means customers are left to their own devices when it comes to things like getting balance of payment codes from the SA Reserve Bank or when they’re struggling with a particular aspect of the transaction. 

Banks will also be slow to implement any new processes around the Brics payment network. By comparison, fintechs are agile and will be able to make the changes quickly.

Regardless of if and when the Brics payment network is finally implemented, SA businesses and individuals must continue doing everything possible to act in their own best interests when it comes to making international money transfers. A key part of that is choosing a provider that prioritises transparency and customer service. 

• Scherzer is CEO of Future Forex.

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