President Vladimir Putin has touted a new international payments framework to world leaders gathered in Russia this week, eager to show how he is shrugging off western sanctions and challenging the US-dominated global financial order.
Putin accused western powers of “using the dollar as a weapon”, arguing in a speech at a Brics summit in Kazan that sanctions against Russia since its full-scale invasion of Ukraine “undermine the trust in this currency and diminish its powers”.
The main agenda item of the summit, attended by the leaders of China, India, Iran and others, was a Russian proposal to circumvent the US dollar by setting up a new payments messaging system known as “Brics Bridge”.
Using blockchain, tokens and digital currencies, it has been touted in Russia as an alternative to Swift, the secure messaging system used to handle trillions of dollars in bank payments around the world.
“We are not rejecting or fighting the dollar. But if we are not given the chance to use it, what can we do? We are then forced to look for alternatives,” said Putin.
Financial sanctions against Russia in the wake of its 2022 invasion of Ukraine played havoc with its foreign trade and international financial dealings. Other attendees of the summit, notably China and Iran, also chafe against western financial domination and have often discussed alternatives.
“Non-western emerging countries like China, Russia, India or other countries, even Saudi Arabia, have the same kind of concerns about possibly one day being ousted by the United States from the Swift system,” said Chen Qi, professor and expert on global governance at the Institute of International Relations at Tsinghua University in Beijing.
“So if this substitute payment system comes out in the future, that would be welcomed by these countries,” he said, adding that it would be difficult to agree on details.
A proposal for a Brics currency was introduced at last year’s summit in South Africa, and prototype banknotes were unveiled for the first time on Russian TV on Wednesday, though it was unclear how they would be used.
“The Kremlin is trying to create a better global financial infrastructure, like the old one but with one very important clause: the Kremlin cannot be excluded from it,” said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center in Berlin.
The well-attended summit was designed to show that Russia is far from isolated. “The process of forming a multipolar world is under way,” Putin said on Wednesday to his guests, including India’s Prime Minister Narendra Modi and China’s President Xi Jinping, as they sat around an inordinately large, round conference table.
Despite the bonhomie, however, there have been few practical steps towards the proposed payments system.
Earlier this month the finance ministers of China, India and South Africa skipped the Brics finance ministers’ meeting, a sign that they had little interest in the proposals. Prokopenko said the delegations to the summit this year were large, but mainly aimed at doing bilateral business with each other and not focused on the common Brics agenda.
“They are nodding, they are politely listening to Russia. But there is no sign yet that this initiative is going viral and will be implemented in real life” she said.
The main problem with the proposal is that the US has made it clear to third countries that working with Russia’s war machine will cost them access to the dollar, hampering the Kremlin’s efforts to build a sanctions-proof payments network.
The effect has been particularly pronounced since December last year, when the US issued an executive order threatening secondary sanctions against entities involved in funding and supplying the Russian war effort.
The chilling effect spurred banks in countries such as Turkey and China to sharply cut back on dealings with Russian counterparties well beyond the executive order’s scope.
Russia’s economy ministry recently revised down its forecast for imports in 2024 by 9 per cent to $295bn from the April prediction of $324bn, meaning that total Russian imports are now set to decline slightly from last year.
The US sanctions have also cut Russian bank cards out of payment systems in all but a handful of countries. A message on the Brics website this year told delegates to remember to bring cash to the summit, preferably in dollars or euros, as their credit cards would not work.
This year, while enthusiasm for overthrowing the dollar remains high among countries including China, analysts say the practical proposals are unworkable.
Nonetheless, the Russian proposal is being taken seriously by central bank officials attending the IMF and World Bank meetings in Washington this week, who said there was a long-term risk that the global payments system could become fragmented due to geopolitical tensions.
“You already see Russia and China looking for ways to do more payments between each other that completely avoid the dollar,” said one senior western central bank official. “So we need to speed up the work we are doing to improve cross-border payments.”
Russia uses non-western currencies for about 80 per cent of its cross-border trade, up from 20 per cent before its full-scale invasion of Ukraine in early 2022, said Agathe Demarais, senior policy fellow at the European Council on Foreign Relations think-tank.
“In the long run, there is no doubt that mechanisms like Brics Bridge could be useful for China, Russia or others to hide sensitive transactions from western authorities — for instance, relating to Chinese shipments of dual-use goods to Russia,” said Demarais.
But she added: “At this stage it is hard to imagine a widespread development and adoption of Brics financial tools globally.”
Additional reporting by Martin Arnold in Washington, Max Seddon in Riga and Joe Leahy in Beijing
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