Journal № 2 (18) 2023 Global trends
Of the 13 areas of activity identified by the members of the Business Council in the Fifth Annual Report to the BRICS leaders as overall priorities, up to half belong to the world of finance. And of the seven classified as strategic for the future, five are attributed to this area, and among them is the establishment of NIPS

10 years of BRICS Business Dialogue The BRICS

Five - Brazil, India, China, Russia and the Republic of South Africa - have a unique place in the world. Collectively, these countries account for about 30% of the land, they generate at least 25% of global GDP and are leading in terms of economic growth. The BRICS countries are the largest market, representing over 40% of the inhabitants of the earth and about half of the young generation. They are also in the leaders in terms of natural resources (the list is headed by Russia, where the size of natural resources is estimated at S 75 trillion, which is 30 trillion higher than the US figure).

South Africa was the last to join BRICS in its current composition, after which this acronym appeared instead of the former BRIC, authored by Lord Jim O'Neill, then chairman of Goldman Sachs Asset Management. And 10 years ago, at the V Summit in Durban, which completed the first cycle of BRIC/BRICS summits, it was decided to establish a leading outreach group of this association - the BRICS Business Council, and its first meeting was held.

The eThekwini Declaration, adopted by the Summit in South Africa on March 27, 2013, launched the process of establishing the New Development Bank (NDB) and creating a financial "safety net" - a self-managed foreign exchange reserve of 100 billion US dollars to counter possible pressure on balance of payments in the event of liquidity shortages in any of the BRICS countries. The pool of Contingent Reserve Arrangement, although not yet used in practice, serves as an important tool for strengthening financial stability and mutual assistance. Right there, the BRICS leaders expressed support for the reform of the international monetary system and the discussion on the role of Special Drawing Rights (SDR) of the International Monetary Fund (IMF). They welcomed the conclusion of a Multilateral agreement on cooperation in co-financing projects in the field of sustainable development between export-import and development assistance banks of their countries. In terms of the effectiveness, it is difficult to find an equal to the Durban BRICS Summit among the other meetings of the "Big Five" leaders.

Monetary and financial issues were considered in BRICS before the establishment of the Business Council. In particular, regular meetings of finance ministers and central bank governors were devoted to them. But the Durban summit marked the beginning of the systematic involvement of the business circles of the "Five" in the consideration of such issues. They are on the agenda of almost all of the nine working groups formed by the Business Council on key areas of economic cooperation, and the central place in the elaboration of monetary and financial topics, especially in breakthrough areas, was taken by the Financial Serviced Working Group (FSWG).

The Business Council, represented by FSWG, approached South Africa's presidency at the next cycle of BRICS summits with serious achievements in such areas as insurance and reinsurance, credit rating policy, partnership with the New Development Bank, financial support for small and medium-sized businesses and the development of a New International Payment System (NIPS).

Of the 13 areas of activity identified by the members of the Business Council for the Fifth Annual Report to the BRICS leaders as overall priorities, up to half belong to the world of finance. And of the seven classified as strategic for the future, five are attributed to this area, and among them is the establishment of NIPS.

The successful work of the Business Council is noted in the BRICS Johannesburg Declaration adopted on July 26, 2018: "We recognize the role of the BRICS Business Council and its Fifth Annual Report, as well as the BRICS Business Forum, in strengthening trade cooperation and business ties in infrastructure, manufacturing, energy, agriculture, financial services, regional aviation, convergence of technical standards and skills development."

The active work of the business community under the South African chairmanship at the second cycle of BRICS summits ended with BRICS Business Council Midterm Meeting and its working groups sessions in Johannesburg in April 2019. The adopted documents record new achievements, including the formation of elements of an alternative monetary and financial system. The general policy of the BRICS Business Council on the NIPS development has taken the form of specific recommendations. A separate taskforce created for its implementation as part of the FSWG came to the conclusion that the first stage on the way to NIPS could be the launch of the commercial "BRICS Pay" project. This project was adopted and accepted for further development and design by the FSWG as a mechanism of interaction to ensure seamless cross-border settlements in BRICS using payment cards and mobile applications. It was recommended to use Newinterfin AG, based in Liechtenstein, as a "special purpose vehicle" (SPV) for project management, as well as for its development and promotion. All this was presented in the context of a public-private partnership with an impressive potential impact on the market.

During the subsequent Brazilian presidency of BRICS, and further in the pandemic years, when communication was conducted via teleconferences, the previous mood of the Business Council for prompt achievement of practical results was lost.

When creating and deploying FSWG, the collapse of the American financial giant Leman Brothers was still fresh in memories. It generated a storm in the financial markets and plunged the world into a deep crisis, which was called the "Great Recession". The crisis has exposed the vices of the dollar-centrist system laid down in 1944 in Bretton Woods, which all the cosmetic repairs could not bring in line with the realities of the transition to a multipolar world.

To overcome the "Great Recession" and prevent new financial cataclysms, the "Big Twenty" was created, which managed to extinguish the "financial fire" without revolutionary changes in the system that gave rise to it. And under the supervision of the Basel Bank for International Settlements, the Financial Stability Board was established. While there is a Board, but there is still no financial stability.

Key elements of the modern monetary and financial system

The decisions by the 1944 United Nations Monetary and Financial Conference in Bretton Woods have anchored the American model of the world monetary order for many decades. Getting fat on military orders and concentrating up to 70% of the official gold reserves of the world, the United States left no chance for its partners to avoid American monetary and financial dominance, committing to freely exchange their currency for gold at a fixed rate of S 35 per troy ounce.

The Soviet Union did not ratify the Bretton Woods Agreements when it became clear that the former allies were by no means going to use the new monetary and financial system to help restore the war-torn territories in the Soviet zone of influence. The USSR and the countries of people's democracy began to build their own system, which accelerated under the influence of the Caribbean crisis. Its central link was the International Bank for Economic Cooperation (IBEC), established in 1963 and registered with the UN, which launched cross-border settlements in transferable rubles. Having a gold content, it essentially became the first largescale digital collective currency of the "stablecoin" type, the turnover of which was based on the principles of blockchain.

The circulation of the transferable ruble ceased with the collapse of the socialist system, even with the preservation of the IBEC, but the second collective digital currency, which appeared in 1968 as a result of the first crisis of the dollar, is still functioning. Having launched the money printing press, the United States abandoned the obligation to exchange their currency for gold when its reserves in Fort Knox fell by more than half, but at the same time agreed to an issue by the IMF a new reserve asset and means of payment - SDR, existing in non-cash form as records on the accounts of the Fund member states. Planned to replace the US dollar and initially equated to it in terms of gold content, the SDR was then tied to a basket of currencies most actively used in cross-border settlements, and the US tried to emasculate the dangerous essence of a global competitor to the dollar.

The Jamaican agreements of the IMF member states in January 1976 formally defined the SDR as the cornerstone of the post-Bretton Woods monetary system. But at the same time, the agreements lobbied by the United States proclaimed the demonetization of gold, legitimizing the transition from fixed exchange rates based on it to the regime of "floating" currency quotations.

The next attempt to introduce a collective monetary unit into international circulation dates back to 1979, when the countries of the European Economic Community began issuing the European Currency Unit (ECU). Twenty years later it became the official currency of the European Union - the euro, which now occupies the second place among reserve currencies.

The hegemony of the US dollar has ceased to suit not only Western Europe, but also many states of the "Collective South" that have embarked on the path of de-dollarization. And among them, an important place belongs to the BRICS countries, which are actively introducing their national currencies into cross-border circulation and are increasingly asserting the need to have their own collective currency.

BRICS Plus and the monetary order for the multipolar world

Not only the pandemic, but also the position of some national regulators overseeing the work of the relevant BRICS Business Council working groups, complicated the transition from general recommendations to practical actions. The latter primarily refers to the FSWG and the activity of its taskforce for the "NIPS/BRICS Pay project", whose efforts to promote an innovative system of cross-border settlements have met with a cautiously negative reaction from central bank "observers". At the same time, the severity of monetary and financial problems has not dulled at all.

The year 2023 marks the 10th anniversary of the establishment of the BRICS Business Council, and the South African side is not averse to celebrating it with new achievements in the effective interaction of business communities. And it is difficult to find any sphere, other than monetary and financial, where such achievements in the current geopolitical situation would be equally relevant and in demand.

Preparing for the current stage of their presidency, the South African colleagues conducted a comprehensive study - the "10-Year Reflective Survey" of the BRICS Business Council activities encompassing over 70 of its active participants from all the five countries.

The survey participants considered the most valuable for themselves and the Business Council the opportunities to collect and receive information about promising international projects, establish contacts in foreign business circles and participate in a dialogue with the authorities in the BRICS countries, while the practical value of the Business Council annual reports to the BRICS leaders was questioned. But the real progress in terms of contacts in government circles, according to the survey participants, is not too great. When answering the question whether it is worth dissolving any of the working groups (and there were some), no one doubted the importance of that for the financial services.

It is difficult to disagree with the recommendations to strengthen dialogue and monitor the fate of recommendations to leaders and governments, to develop interaction with intergovernmental bodies and other business associations, to increase the effectiveness of physical meetings, but not everything is clear with other means of improving the efficiency of the Business Council. An example of this is the proposal to consider the expediency of preservation of those projects on the BRICS agenda that have not yet met full consensus in their working groups. That means, projects that are stuck for one reason or another in the "Issues under consideration" section of the BRICS Business Council annual reports are at risk of disappearance from the working agenda. But this section, since the last presidency of Brazil, includes projects such as BRICS Rating Agency, Green Finance, Financial Support for SMEs, Insurance and Reinsurance, as well as the project NIPS/ BRICS Pay - BRICS Pay Payment Service. Regarding the latter, the report on the results of the Russian BRICS presidency in 2020, has the following wording: "This initiative, supported by the BRICS Business Council chapters from Russia, India, China and South Africa, is not yet a priority for Brazil." And why, in fact, it is impossible to start the project with four or even three participants, leaving the "door open" for those who wish to join them later?

The report on the reflective survey contains the proposal to rename the FSWG into the "Financial Services and Monetary Affairs Working Group", which does make sense. But the South African colleagues preferred the experimental unification of working subgroups on "BRICS Pay" and financial technologies. The result of the activity of this hybrid called “Fintech & Payments Working Subgroup” should not be the promotion of an alternative system of cross-border payments based on previous achievements, but so-called "White Paper" with "outlines of a potential common platform for BRICS stablecoin". This is despite the fact that over the past years, predominantly under the South African presidency, the participants of the NIPS/BRICS Pay taskforce have worked out not just a general concept, but also key elements of the roadmap for the implementation of this project.

The results obtained essentially boil down to the following:

1. An alternative system of cross-border payments and settlements should correspond to the realities of a multipolar world. As a basic scheme of their organization in a changing environment, a network of several monetary and financial institutions of equal status and functions is better suited than unitary interstate institutions like the Basel Bank for International Settlements (BIS).

The separation of geographical areas of responsibility for the NIPS regional centers does not exclude the coordination of their work through a common council, where the company Newinterfin AG can serve as its prototype.

2. An important element of the proposed innovative system is the use of a New Unit of Account (NUA) in payments and settlements with the prospect of its transformation into a collective digital currency - stablecoin for the BRICS Plus countries. Such a currency has many options for "content filling" and anchor binding - from a return to the previous practice of fixed gold content to the most exotic options for its basket. For simplicity of calculation and transparency of conversion of national currencies in cross-border payments, the participants of the BRICS Pay Taskforce propose to use a corrected SDR basket. The formula of this basket is fixed for a five-year period and is well known, and the SDR exchange rate is published by the IMF secretariat every working day in relation to 47 currencies used in international settlements.

The simplest way to adjust the basket of this unaccomplished global currency project is to bring the overestimated, according to many experts, share of the US dollar in its formula more in line with the changing reserve role of the US currency. In the BRICS stablecoin basket, it is recommended to reduce the share of the dollar by 10 percentage points, and fill the resulting "gap" with gold or other precious metal. Such currency unit will be much more stable than any of its basket currencies, which should attract investors and traders under long-term contracts, while currency speculators will not be interested at all. Other anchor options for the NUA are also possible, provided that proper stability, transparency and simplicity of exchange rate calculating are maintained.

3. Under certain conditions, the new unit will be able not only to perform counting functions, but to become a full-fledged collective currency with a reliable, balanced emission mechanism, thereby completing the process of forming the base for an alternative monetary and financial system for a multipolar world.

4. It is planned to build a new monetary and financial system in stages, starting with the block of external settlements for the retail sale of goods and services and the private cross-border transfers at the first stage with further lifting to the corporate level - servicing international business of legal entities and to interstate settlements in the BRICS - SCO - EAEU plus area at the final stage.

5. The profile taskforce of the BRICS Business Council considers it expedient to start the deployment of the NIPS with the implementation of the BRICS Pay commercial project, providing for the release of a multi-brand payment card and the development of a corresponding payment application with a QR code for smartphones. By a seamless interconnection of the national payment systems of the BRICS countries and other interested states with the help of digital technologies, the project involves the construction of an innovative platform for cross-border payments outside national jurisdictions while preserving the integrity of the national monetary systems of the participating countries. Through local currency accounts in a number of interstate banks united into trans-regional network, it will link commercial financial institutions into a system where some individual states can become a payment hub for others.

At the same time, the seemingly archaic for the era of the latest technologies sub-project for the release of a multi-brand plastic card is still very relevant. The proof is the recent story of paying for a business breakfast in one of chain restaurants in Moscow. Businessmen from South Africa, Belarus and Russia alternately tried to pay the bill with their cards issued by banks of their countries. The first failure befell a South African entrepreneur with a VISA card issued by Standard Bank, one of the largest financial and banking groups in emerging markets. In principle, this can be explained, but the refusal to accept payment by the Belarusbank card, that of the leading bank in the country-member of the Union State, with the BELKART and MIR logos stamped on it, cannot be explained. I had to ask our waiter which bank served the restaurant and it turned out to be one of the largest in Russia. So much for MIR all over the world.

The issue of the cost of private cross-border transfers is also acute. According to the World Bank, the average cost of transferring abroad the amount of S200 was 6.01% or about S 12 for each transfer in the middle of last year. Calculations of our colleagues from the National Payment Corporation of India, for whom the topic of money transfers from expats is of practical interest, showed that even if the UN goal of halving the commission for cross-border transfers by 2030 is achieved, the relevant proceeds will quickly pay off the investments of the leading Global South countries in the deployment of their own payment infrastructure. In general, an explosive growth of cross-border payments is expected - up to S 250 trillion by 2027 (in 2017, this figure was S 150 trillion).

The inclusion in the NIPS/BRICS Pay mega-project of such commercial components as a multi-brand payment card, a special smartphone application for payments using a QR code or a new commodity exchange using the NUA for quoting market prices and settlements between sellers and buyers does not exclude, but, on the contrary, assumes its implementation in the format of public-private partnership.

De-dollarization is widely discussed by experts at numerous business forums, conferences and seminars, as well as in the mass media. The creation of a single currency for mutual settlements was announced at the beginning of the year by the leaders of Argentina and Brazil. Brazilian President Lula da Silva stated the need to raise this initiative to the level of BRICS and MERCOSUR. On the G20 sidelines, China and Russia officially advocated earlier for the transformation of the SDR into a global-currency, and even now prominent representatives of the scientific circles have not abandoned this idea. The demands of de-dollarization of external settlements and national currency reserves are being heard throughout the Global South.

Last year, a lengthy report was published in Cambridge entitled «Can BRICS De-dollarize the Global Financial System?" Having analyzed the available information on BRICS Pay, BRICS developments on alternatives to SWIFT and digital currencies, its authors highly evaluated the chances of BRICS to create an alternative non-dollar financial system. On the other hand, the previously mentioned Jim O'Neill, who calls himself the "creator of BRICS," in a recent interview on the prospects of this bloc and its role in Africa, expressed doubts about the possibility of launching a single currency by countries that "can’t even really agree on basic things like a peaceful border". Calling the dominance of the dollar "problematic" and recognizing "the need for some different monetary and financial system," he is not sure that replacing the dollar with another national currency would make such system any better.

The topics of mutual settlements and a collective currency are unlikely to fall out of sight of the BRICS leaders at their next summit in Johannesburg. The creation of a reliable monetary and financial "safety net" is relevant both for them and for the leaders of those states that intend to join BRICS or have already joined the "Five" as shareholders of the NDB. The recent banking turmoil in the United States and Switzerland, as well as the situation with American debt, have only strengthened the desire to protect themselves from new financial cataclysms, and in this vein, the work of the BRICS Business Council on the most pressing monetary and financial issues is of particular importance.

There is still time before the XV summit in Johannesburg, and even more so before the end of the South African presidency of BRICS, in which a lot can be done. And next year, the presidency will pass to Russia, which is no less than other BRICS countries, interested in launching and successfully functioning an alternative monetary and financial system. Russian priorities in BRICS for 2024 have yet to be determined, but they are unlikely to be limited by the continuity of the agenda. Most probably, new initiatives will be put forward to strengthen mutually beneficial cooperation in the BRICS-SCO-EAEU format with the possible connection of the G20/B20, where India currently chairs, and the work will go on under the presidency of BRICS countries for another two years.