The meeting in Kazan of the Brics-plus group from 22-24 October was a diplomatic and political success for President Vladimir Putin. He was lucky that it was Russia’s turn as chair. However, it disappointed by offering nothing new in economics and finance, and it failed to take any new steps towards de-dollarisation.
Expectations were high. A new cross-border payments system and even a common Brics currency were on the table, with rumours of a petroyuan being established to replace the petrodollar. Russian government officials produced volumes of studies on many topics, ranging from agriculture, education, environment and energy to sports and counter-terrorism.
However, the lack of adoption of any responsibilities by the participating countries and the failure to establish new institutions to manage the transition to a new world order showed a lack of political will to turn these proposals into a reality. This is reflected in the summit declaration.
Kazan declaration is short on innovation
The declaration confirmed the need to reform the international financial architecture. But it also emphasised the participating countries’ support for the International Monetary Fund, G20 and World Trade Organization.
The declaration called for the increased use of national currencies for cross-border payments, using Brics banks and central banks to execute the transactions. There was no mention of a multilateral clearing system, but it did announce the study of Brics Clear, a private clearing system.
The Russian Ministry of Finance and the Central Bank of Russia released a study on economics and finance. ‘Improvement of the international monetary and financial system’ identifies the pillars of cross-border payments as national currencies, Brics banks and central banks creating their own messaging systems. Increased use of national currencies will boost the global foreign exchange markets by creating arbitrage opportunities.
The declaration referred to the establishment of a contingent reserve arrangement for short-term balance of payments pressures, a sort of liquidity facility. The seventh test run has been completed but no details were given about the financing and conditionality of this facility. This looks much like the IMF’s stand-by facility.
Attention was paid to boosting cross-border foreign direct investment and portfolio flows among Brics countries. The government-funded flows are small compared with those generated by the global financial markets. These are driven by private financial flows, owned by institutional and private investors in western countries as well from Brics countries. The role of governments is to provide an environment that is conducive to attracting these massive flows. Recent outflows of portfolio investments from China, as well as negative FDI flows, underline that the markets do not follow Brics governments but make their own investment decisions.
Missing from the declaration were any references to would-be game-changers and serious challengers to the global role of the dollar. There was no mention of Project mBridge, the multi-central bank digital currency initiative that will apply blockchain and distributed ledger technology to allow linked national CBDCs to clear in seconds and avoid the need for sending messages, bypassing Swift. And it made no reference to the Financial Stability Board’s roadmap for reforming cross-border payments by linking fast payments systems in 70 countries, including the Brazilian PIX and Indian Unified Payments Interface systems.
Also absent were any mentions of a switch to renminbi-denominated oil payments – the petroyuan – as well as the creation of a common Brics currency. Saudi Arabia was quiet and even Putin acknowledged that creating a new currency would take time.
It was notable that the autumn meetings of the IMF and the World Bank last week did not mention the Kazan declaration. Financial officials from Brics countries emphasised that they were treating the declaration with scepticism. Global finance would be wise to do the same.
Herbert Poenisch is Senior Research Fellow, Zhejiang University, and former Senior Economist, Bank for International Settlements.
