Russia Pitches BRICS Payment System Aiming to Break US Dominance

Russia is proposing changes to cross-border payments conducted among BRICS countries aimed at circumventing the global financial system, as the heavily penalized country seeks to sanctions-proof its own economy.

The alternatives include developing a network of commercial banks that can conduct such transactions in local currencies as well as establishing direct links between central banks, according to a report prepared by the Russian Finance Ministry, the Bank of Russia and Moscow-based consultancy Yakov & Partners.

The “multicurrency system” will need to “ring-fence its participants from any external pressures such as extraterritorial sanctions,” said the report, which also argued that US interests “are not always aligned with the interests of other participants” of the global financial network.

The plan also includes the creation of centers for mutual trade in commodities such as oil, natural gas, grain and gold.

The US and its allies imposed sweeping penalties on Russia after President Vladimir Putin ordered the February 2022 full-scale invasion of Ukraine. They froze Russia’s foreign assets and kicked major Russian lenders off the SWIFT financial messaging system. In response, Russia has sought to decrease its dependence on the dollar.

Still, other BRICS countries not facing the same complications from sanctions have continued to prioritize access to the dollar-based financial system. Globally, 58% of international payments, excluding those within the euro area, involve the greenback, while the dollar is used in 54% of foreign trade invoices as of 2022, according to the Brookings Institution.

The report was published as Putin prepares to host leaders for the annual BRICS summit, in Kazan from Oct. 22-24. The BRICS group comprising Brazil, Russia, India, China and South Africa expanded in January to include Iran, the United Arab Emirates, Ethiopia and Egypt.

Among the proposals, Russia is pitching the use of distributed ledger technology (DLT) or a new multinational platform to allow settlements with tokens.

“The key advantage of utilizing DLT settlement model is the elimination of the credit risk” accompanying the conventional banking set-up, the report said.

Read more: What to Know About BRICS, Now Doubled in Size: QuickTake

DLT could also reduce processing times and costs because correspondent entities and compliance checks will be absent, saving BRICS countries as much as $15 billion annually if half of all cross-border transfers used such transactions, the report’s authors argued.