One fact has been clear for decades: the dollar, which replaced the pound sterling as the world’s reserve currency after World War II, still accounts for nearly 60% of global foreign exchange reserves today
In this frantic race for dominance in global payments, a new chapter is beginning with the announcement by the BRICS nations. These emerging economic powers—comprising Brazil, Russia, India, China, and South Africa—have revealed their intentions to establish an alternative payment network, thereby challenging Swift’s hegemony and accelerating the adoption of central bank digital currencies (CBDCs).
This initiative is taking place against a complex geopolitical backdrop, where tensions between traditional and emerging major powers are becoming increasingly palpable. By seeking to strengthen their financial autonomy, the BRICS countries are implicitly challenging the economic and financial order established by the West, thereby marking a significant milestone in the evolution of the global landscape.
When combined with the expansion of this group to include countries such as Saudi Arabia, Egypt, the United Arab Emirates, Iran, and Ethiopia—and even Argentina—the stakes are high: nearly 3.5 billion people, 25% of global GDP, and 18% of worldwide trade are at stake.
- BRICS’ Goals for De-dollarization and Currency Reserve Accumulation
In addition to strengthening their financial independence, the BRICS countries are actively seeking to promote the de-dollarization of the global economy. This strategy aims to reduce their exposure to fluctuations in the U.S. dollar and mitigate the risks associated with over-reliance on a single currency.
To this end, the BRICS countries are considering building up reserves of alternative currencies, such as the Chinese yuan or the euro, in order to diversify their holdings and strengthen their long-term financial stability. This move is part of a growing global trend aimed at rebalancing countries’ foreign exchange reserves toward a more diversified mix of currencies.
SWIFT's response
SWIFT (Society for Worldwide Interbank Financial Telecommunication), a global cooperative providing secure financial messaging services, has long been at the heart of the global financial system. News of the BRICS payment network has drawn particular attention from SWIFT, which views this initiative as a potential disruption to its established business model.
Swift is therefore actively collaborating with several major financial institutions to integrate central bank digital currencies (CBDCs) and tokenized assets, with the goal of rolling them out within 12 to 24 months.
The results appear to show that CBDCs and tokenized assets can circulate seamlessly using existing infrastructure.
Tests confirm that:
- The ability to interconnect blockchain networks for cross-border payments and to interact with a real-time gross settlement system.
- The infrastructure can be used to connect different tokenization platforms and various types of cash payments (in partnership with Citi, Clearstream, SETL, etc.)
- The ability to create, transfer, and redeem tokens, as well as update balances across multiple customer wallets, and ensure interoperability between different tokenization platforms and existing account-based infrastructure is technically feasible.
2. The Rise of CBDCs and Their Future Implications
Alongside the announcement of the upcoming BRICS payment network, many countries around the world have begun exploring the possibilities offered by central bank digital currencies (CBDCs). These initiatives aim to modernize national payment systems, increase financial inclusion, and better understand the benefits and challenges associated with the digitization of money.
Swift’s response to the emergence of the BRICS payment network underscores the growing importance of CBDCs in the global financial landscape. While some countries, such as China, have already launched CBDC pilot projects, others, including the United States and the European Union, continue to actively explore this digital currency option.
In conclusion…
We believe that the interaction between the new BRICS payment network and CBDC initiatives will undoubtedly accelerate and significantly reshape the global financial landscape in the coming years.
Technological advances suggest that Swift’s CBDC could be launched before the BRICS currency. This prospect is significant, especially since it would enable Swift to quickly integrate into the global financial market
These developments therefore raise important questions right now about financial geopolitics, monetary sovereignty, and international cooperation in an increasingly interconnected world.
The16th BRICS Summit in August 2024 is expected to provide some answers in this race for global payments….
an article written by…
Marc LEBOEUF
Head of the Operations and Finance Practice
