The BRICs countries announced in March 2024 that they have plans to develop their own payment system the next three years, with more countries joining, the recent being Malaysia. In a report by the Russian News Agency, the BRICS group, comprised of Brazil, Russia, India, China, and South Africa, was noted as working on creating a payment system based on blockchain and digital technologies.
Russian aid Yury Ushakov stated, “We believe that creating an independent BRICS payment system is an important goal for the future. The main thing is to make sure it is convenient for government, common people and businesses, as well as cost-effective and free of politics.”
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More and more countries in the MENA region, such as the Kingdom of Saudi Arabia, have also joined both BRICS and the mBridge CBDC cross-border digital currency project led by the Bank of International Settlements and the Central Banks of China, Hong Kong, Thailand, and the United Arab Emirates. The mBridge project also has more than 26 observing members, including the South African Reserve Bank, which was greenlighted as a member in June.
BRICS, mBridge, and the petrodollar have a link
The link between mBridge, BRICs, and an alternative to the petrodollar has become more prominent as the Saudi Central Bank also announced it would be joining the mBridge project at the same time as it ended the 80-year-old petrodollar agreement.
Analysts have speculated that Saudi Arabia could abandon the US dollar in oil and trade and liquidate transactions in Yuan, a CBDC, or another digital currency backed by gold.
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In addition, in June, an IMF report showed that 19 countries in the Middle East and Central Asia are exploring the creation of a central bank digital currency (CBDC). The countries in advanced stages included Bahrain, Saudi Arabia, and the UAE. Qatar recently announced it had started its CBDC project.
This all comes as BRICS economies and economic dominance grows. In 2022, BRICS accounted for 31.67% of economic growth, ahead of the G7’s 30.31%.
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Cryptopolitan spoke to several experts and Blockchain technologists to discuss the possibility of a BRIC CBDC in the near future.
There are two proponent views on this topic. Some believe that the end of the petrodollar agreement could push forward a digital currency to take its place, while others believe that this is a long way down the road and not even on the table.
CBDCs can replace the petrodollar
Aka Leong, MENA regional Head at Bitget crypto exchange, believes that there is a strong possibility that CBDCs could replace the petrodollar. He notes it might happen. He explains, “The adoption of digital currencies and blockchain technology has been gaining momentum globally, and BRIC countries, known for their economic influence, may also embrace these innovative financial tools in their trade activities.”
Leong believes that CBDCs offer transparency, efficiency and reduced transactions costs, thus facilitating cross border transactions and payments. He asserts that both CBDCs and stablecoins can eliminate intermediaries and reduce reliance on fiat currencies.
The Central Bank Digital Currency (CBDC) revolution is beginning in earnest as Saudi Arabia becomes a full member of the mBridge project. Saudi Arabia joining the platform will give it access to immediate, low-cost, cross-border currency transactions, which it will use to sell… https://t.co/2jv068k6wt pic.twitter.com/1fZJmIJDs1
— Mr. Man (@MrManXRP) June 30, 2024
For Leong, crypto exchanges can enable seamless conversion between different digital currencies, while also contributing to price discovery and enabling fair competitive trading environments.
Jason Sarria Solis, President, Emerging & New Business at WadzPay, a blockchain solutions provider for the financial sector, and one of the entities who recently received a VASP license from Dubai’s regulator VARA, believes that the prospect of BRICs nations establishing their own currency could be a good strategic and pragmatic move.
Solis explains, “Creating a new trade currency for BRICS and potential partner countries would be the easiest approach to reducing their reliance on the USD.”
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Yet he mentions several challenges: trust, technology, and governance. He proposes that the petrodollar be backed by a tangible asset to ensure trust.
He states, “The foundation of any stable currency lies in mutual trust among its users. It is imperative that any new BRICS currency is safeguarded against debasement by any central authority. To foster trust and ensure sound money, I propose that this currency be backed by a tangible asset, such as gold, similar to the concept of the “Petro Dollar.”
He also believes that the technological infrastructure is important and poses questions such as should there be a third party handling it for the BRICS consortium.
For him, given the paramount importance of security and privacy, the most viable solution would be to build a private ledger prioritizing these aspects over scalability and throughput.
Finally, according to Solis, one of the most complex challenges will be establishing an equitable and transparent governance model. He notes, “It is essential to define clearly who holds the power and decision-making rights within the currency system. Blockchain technology, designed to support such decentralized solutions, could be instrumental in creating a governance structure that is both fair and transparent across all parties involved.”
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Prior to this, Saleh Algrayan, Innovation Development Specialist at the Innovation Hub of Saudi Central Bank had noted on LinkedIn, “I am immensely proud to announce that the Saudi Central Bank (SAMA) has joined Project mBridge as a full participant, coinciding with the project reaching its minimum viable product (MVP) stage! “
According to him the mBridge project will transform cross border payments by addressing high costs, slow speed and operational complexities.
He believes SAMA’s participation marks a significant step forward, demonstrating the kingdom’s leadership in global financial innovation. He stated, “We are paving the way for efficient, cost-effective, and instant cross-border transactions, addressing financial inclusion and making payments universally accessible.”
Digital Currencies and the petrodollar are linked
Others, such as Mohamed Abdou, the Founder and CEO of Pravica, a blockchain solutions provider offering CBDC and stablecoin solutions built on the Sui blockchain, believe that there is no connection between the ending of the petrodollar agreement and the rise of a BRICS digital currency.
He explains, “If they wanted to disassociate the petrodollar from USD, they could use Yuan, Euro or any other fiat currency, stablecoins will not make it happen any faster, it is just a tool. You can even use a stablecoin backed by USD. CBDC will not accelerate disassociation of petrol sales from dollar currency. I believe they will use a currency that carries value.”
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While Talal Tabaa, Founder and CEO of CoinMENA crypto broker exchange regulated in UAE, and Bahrain, believes that today most blockchain transactions are actually in stablecoins which are either USDT or USDC which are digital representations of the dollar.
As such, he explains,” I don’t think digital currencies, will replace the petrodollar in the near future. What we will start seeing is more countries and companies using stablecoins as cross border payments, because as long as cost base is in dollars we will still see people use dollar pegged stablecoins for transactions.”
A BRICs CBDC, like the Euro, could be a reality
In conclusion, despite the ongoing debate about whether the petrodollar will be replaced by a digital currency, either CBDC or stablecoin, the fact remains that Blockchain and DLT technologies have made it possible to bridge together country based fiat currencies in a trustworthy, fast, and secure manner.
Just like the Europeans created the Euro currency, taking decades, the BRICS could create a CBDC in a matter of just a few years, consolidating the strengths of each of their currencies into a basket. Maybe that is why some propose that the G7 create their own digital currency to counter BRICS.
Cryptopolitan reporting by Lara Abdul Malak
