Can the bloc survive on digital currency?
At least Vladimir Putin will attend this year’s BRICS summit in Kazan, Russia – he had to skip last year’s get-together due to an outstanding international arrest warrant. The bloc - group of nations lumped together by a Goldman Sachs trader that morphed into a JV G7 in 2009 - meetings have always been intriguing for the simple reason that member countries don’t have common national interests. Apart from China, they don’t do significant trade with each other.
The only thing the bloc does seem to have in common is a desire to create an alternate cross-border payment systems that doesn’t involve the US dollar, and American banks, as a clearing house. They’ve been fusing about this for years, but now the countries have a model to work from: the Bank of International Settlements (BIS) has been working on a project called mBridge to decrease transaction times - from days to seconds - and costs. Never shy about intellectual property theft, China has called the project BRICS Bridge.
Two BRICS members, Russia and Iran, desperately needs a new system to evade the sell side of US sanctions. Russia’s economy is surviving domestically on a war footing - better than Iran’s – but it is having a hell of a time with its foreign currency reserves now that it can’t sell its oil and natural gas in petrodollars or euros. Most of its international transactions are in yuan and because it can’t get enough of that, Moscow has been forced to barter with trading partners. It recently purchased Pakistani mandarins with consignments of chickpeas and lentils. For its part, China wants one to ignore buy-side sanctions. The rub is will it work?
Anything is possible. The entire bloc has defined itself against the global financial dominance of the US and “the West” and they have a point: The US has used its position as the international financial clearing house as leverage to police states without having to go to war. So once Washington started playing with national checkbooks, this was always going to happen.
China is betting that technologies making the system cheaper and faster will it outweigh the phycological factor of the utility of money - liquidity and stability. While the entire bloc theoretically wants this it is starting to dawn on the member states that they are trading Western dominance for Chinese bullying.