(Bloomberg) – BRICS countries have yet to make great strides in their cross-border payment systems due to the trade and investment they have discussed for ten years.
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In a statement released when they launched their meeting on Brazil’s Sunday, the leader pledged additional consultations on the potential for greater trade integration in the bloc of 10 countries.
“If necessary, we will leave the Minister of Finance and the governor of the central bank to continue discussions regarding the BRICS cross-border payment initiative,” the statement reads. The survey, created by the Central Bank of Brazil, will be presented at the two-day Rio de Janeiro Summit.
Despite the group’s aspirations, progress has slowed. And the global trade flow is changing so quickly that it may not be possible to keep up.
This is an missed opportunity for BRICS as the dollar is under continued pressure from President Donald Trump’s volatile policies. Greenback has gotten off to the worst start of a year since 1973 on Trump’s trade war and attacks on the he on the Federal Reserve decline, causing market collapse, questioning the long-standing outperformance of US assets, and fleeing investors in search of alternatives. It created benefits for emerging markets that traders hope to expand further.
All members support the cross-border payment idea first cited in Bloc’s 2015 Summit statement, but the technical aspects of integration are complicated. The central banking system of some countries is not ready yet, said three well-versed in the discussion. They said it takes time to adapt them, adding that it’s unlikely to happen anytime soon.
Obstacles
Discussions include payment mechanisms, the type of currency used, how infrastructure is implemented, and how to share costs. The two added that recent expansions of BRICS Bloc have also caused delays, adding that the integrated system has security concerns.
One person said that the fact that some of the bloc’s currencies are convertible and that existing sanctions on Iran and Russian member states further complicate the debate. In some countries, you may argue that the costs associated with setting up and maintaining a unified system are not justified given what they already have in terms of bilateral trade. Everyone was asked not to share details of their personal conversation.
China has taken advantage of the US turmoil to launch a drastic campaign to promote its original global role. In a speech last month, China’s central bank governor Pan Gongsheng outlined the vision of the country’s financial markets being more open and the Yuan playing a central role in the flow of the world’s capital.
Beijing is exploring the launch of the country’s first domestic currency futures that can compete with similar hedging tools in offshore markets such as Singapore and Chicago, expanding its own payment system known as CIPS to cover more foreign banks.
Playing cards pushback
The BRICS leader also reaffirmed his commitment to expanding local currency funding, diversifying funding sources, and strengthening trade cooperation to promote inclusive growth and sustainable development.
A document obtained by Bloomberg outlining the latest thinking by Blok shows that debate about a new investment platform called the NIP is similarly stalling.
The platform is expected to potentially fill the development finance gap, providing more flexibility and reduce reliance on hard currency financing. However, it reads, “Given the various approaches and proposals raised and the complex nature of the related issues, further technical dialogue is essential to deepen a common understanding of the potential value-added platform and operational frameworks.”
Trump is threatening to levie 100% on BRICS if he abandons the dollar in bilateral trade. This pushback is therefore interested in developing local payment systems and other equipment that can promote commerce and investment between nations.
The idea of abandoning the dollar and setting a common currency for the bloc is not under discussion, some officials said. The response of US leaders has not slowed down the conversations of BRICS, the three said.
“One way to bring countries closer is to reduce the costs of funding for trade operations. And one way to use more local currencies is Tatiana Rosito, International Relations Secretary at Brazil’s Ministry of Finance, said in an interview. “Banks may need to use a rate that converts Renminbi to dollars, depending on how long they run the operations. But ultimately the goal is to one day not have it.”
If there is a secondary market, “You’ll have substantial Renminbie, Real Rupee and Realland of direct exchange rates,” she said. “But this depends on whether you have a critical mass and a volume of trade investment.”
High rate
The BRICS statement also references the additional challenges presented by “motivation in monetary and monetary policy in some developed economies” for countries already tackling high debt levels. It reads, “High interest rates and more stringent financing conditions exacerbate debt vulnerability in many countries.”
The Bullock has also been featured in discussions to establish a multilateral guarantee initiative focused on improving “BRICS and the Global South’s creditworthiness.” According to the statement, the initiative, called BMG, will be incubated within the NDB and launched without additional capital contributions.
– Support from Alan Crawford.
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