BRICS Nations Creating BRICS Pay As Cloud Platform Accessible Via Smartphone To Avoid US Dollar Trade
The BRICS grouping of countries, Brazil, Russia, India, China and South Africa are creating a single payment system, BRICS Pay, as part of the drive to establish a common system for retail payments and transactions between the member countries.
These nations, all among the worlds leading and most powerful emerging markets, plan to introduce a special cloud platform, which will connect their national payment systems. An online wallet will be developed with access to these payment systems, which will also include mobile apps similar to Apple Pay, which can be installed on smartphones for purchases in any of the five BRICS countries, regardless of which currency the payment and the money in the account of the buyer are denominated in.
This means that nationals of Brazil, Russia, India, China and South Africa will be able to use their own national currencies as a direct basis of exchange for external payments. This is being seen as a major step on the path to de-dollarization and a de-coupling from the current US controlled global banking system.
China and Russia in particular have been highly critical of the United States defacto use of global payments systems, which have been used as trade and sanctions weapons to either inhibit or punish nations whose polices do not fit with those of Washington. Both have been actively seeking for some time now to de-dollarize their trade, and the BRICS Pay system is a major step in that direction. The BRICS nations have also been examining the possibility of developing a BRICS Cryptocurrency.
Innovative systems like Apple Pay and Samsung Pay are already popular in China and India, and have recently appeared in Russia, where earlier this year the Mir Pay payment service was established for Mir cards users; it is now available on Android-based smartphones.
The BRICS Pay contactless payment system will not duplicate their respective national payment systems; it will simply serve as a service for linking the credit or debit cards of the citizens of the five BRICS countries to online wallets, which will offer them the ability to pay using a smartphone. At the same time, BRICS Pay will increase the popularity of national payment systems, which are gradually replacing Visa and MasterCard. This process is especially noticeable in Southeast Asia, and Russia where the Chinese system UnionPay is the leader; in 2015 it surpassed Visa in terms of total operations. UnionPay has already issued over 6 billion cards.
The scale of China’s economy and the sheer size of its domestic market, number of people and the development of outbound tourism have all contributed to the growing popularity of UnionPay. Now, China’s Huawei telecommunications corporation, together with the UnionPay payment service, is launching its own system in Russia: Huawei Pay. Russia will become the second country after China where Huawei Pay will function.
The national payment systems of the other BRICS nations are smaller in scale than China’s, but have indicated promising dynamics. India’s RuPay payment system has already issued 500 million national cards, Brazil’s ELO has issued 120 million cards, and Russia’s Mir system has issued about 50 million cards.
The Russian media have cited the country’s Federal Antimonopoly Service as saying that in 2018, the Mir national card system took approximately 5.5 percent of the market for payment systems away from Visa, as well as 6 percent of MasterCard’s market share. The usage of Visa cards by Russian citizens in non-cash payments decreased from 45% of the total market to 39.5%, and MasterCard’s market share dropped from 42% to 36%. Now Mir cards account for 24.5% of the volume of non-cash payments; the volume of transactions conducted using the Mir national cards during 2018 amounted to 2.7 trillion rubles. Part of the move away from American denominated cards was instigated by US sanctions, two years ago many ordinary Russian citizens in Russia found themselves unable to access cash via their Visa and Mastercards; the United States had switched them off the global payments network. Similar situations have also occurred in Turkey and more recently in Iran. These, and other countries that have been subject to what many refer to as “US bullying” will be looking at the BRICS Pay scheme with interest.
This is because external settlements using (as an example) China’s UnionPay non-cash transactions, such as Ruble-RMB Yuan transfers, still require a conversion into US dollars, which necessitates the use of US banks. This process creates additional operational risks, stemming from the threat of sanctions. Similarly, UnionPay payments involving euro cards pass through European banks. US protectionism, sanctions and trade battles are compelling countries to develop financial and economic ties outside the “dollar zone”.
In order for settlements in national currencies to bypass the dollar, the People’s Bank of China will open lines for currency swaps to partner banks to support the exchange trade in yuan in regional currency markets. Similar lines will be opened by the central banks of Brazil, Russia, India and South Africa. In these instances, a settlement mechanism based on a basket of currencies of the BRICS countries and a separate financial infrastructure will appear. This, in turn, will support the diversification of the global financial system and currency multi-polarity. BRICS Pay, as a contactless transfer system, will give the citizens of the BRICS countries a convenient means of conducting transactions.
The Chinese Belt and Road Initiative and Russian integration initiatives within the Eurasian Economic Union, which has already dedollarized 70% of its total trade will also serve as steps towards creating a “larger space economy”, where the rules will be determined by the leading powers of the region, and investment resources will be concentrated in their respective national currencies.
In addition, the BRICS Pay contactless payment system utilises the latest FinTech: technology and innovations which make it possible to successfully compete with traditional banks in the financial services market. With the world gradually slipping into new “old” and “emerging” divisions, with the emerging regions taking up increasing value in terms of wealth creation and trade, the steps the BRICS and others are taking to create and maintain their own de-dollarized technologies and infrastructure are economically viable and will help ensure the independence of the respective countries’ policies and economies – externally from the political and trade reach of the United States.
Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the practice Chairman. The firm has 26 years of China operations with offices throughout China, Asia and Europe. Please refer to our Belt & Road desk or visit our website at www.dezshira.com for further information.