How Putin Proposed to ‘Destroy the US dollar’ During BRICS?

Russia hosted the BRICS summit, where Vladimir Putin proposed a new financial system without the dollar. What is known about this?

During the BRICS summit in Kazan, Russian President Vladimir Putin noted that the issue of creating a single currency is not yet relevant as it has not yet matured.

He explained that the development of such a currency requires a high degree of integration of economies, which must be of “comparable quality and volume”. This remains a hope for the future.

At the same time, Russia offered its BRICS partners the opportunity to use digital currencies for investment. Finance Minister Anton Siluanov explained that this concerns a new BRICS payment system, including a system for transmitting financial messages between banks and a platform for the use of digital financial assets.

Chinese President Xi Jinping emphasized that BRICS countries should work on creating new digital platforms. The essence of the reform proposed by the head of the PRC is a new system for international payments called BRICS Pay, based on blockchain and CBDC.

IMMEDIATELY: 🇨🇳 Chinese President Xi Jinping said BRICS should support a new financial system.

“There is an urgent need to reform the international financial architecture, and BRICS should play a leading role in promoting a new system that better reflects the profound changes in the global economy.” pic.twitter.com/dXFoZ1Rhil

— BRICS News (@BRICSinfo) October 23, 2024

How might the new payment system work?

Among the main initiatives, countries are considering the possibility of using digital money backed by fiat currencies. This would allow central banks to participate in cross-border transactions, rather than correspondent banks in America that have access to the dollar clearing system.

Layout of BRICS alternative currency banknote | Source: BRICS News

Thus, no country can isolate another from the financial system. Commercial banks will make their payments through their own regulators and will not need to maintain bilateral relations with foreign entities.

In October, the Ministry of Finance and the Bank of Russia presented a plan for the development of a similar system. As noted by the Economist magazine, this project is inspired by the experimental bridge payment platform created by the Bank for International Settlements (BIS) in collaboration with the central banks of China, Hong Kong, Thailand and the United Arab Emirates.

Project participants report that they have significantly reduced the time taken to execute transactions from several days to a few seconds and reduced transaction costs to almost zero.

Is it a natural change?

The proposal of the Russian President took into account new realities. Digital technologies have changed over the several years that the creation of a single BRICS currency was discussed. Digital ruble is currently being tested for consumer payments in Russia. It will soon be used in federal budget payments.

According to Russian media, the transition to digital assets will reduce transaction costs and increase bank income by $81 billion per year. The project itself fits the logic of the advantages of digital government that Russia is promoting:

“Implementation of the project will require modernizing the financial sectors of dozens of countries, as well as establishing interaction between payment systems, answering questions about the rates of digital currencies and creating an analogue of the IMF.”

How Russia bypasses sanctions through cryptocurrencies

While trade restrictions had previously caused critical difficulties in the financial lives of countries, the situation has become even more volatile with the invention of the internet and cashless payments. With the development of blockchain and cryptocurrencies, there are even more opportunities to bypass bans.

Tether (USDT), a stablecoin pegged to the US dollar exchange rate, has effectively created a financial system beyond Washington’s control and helped countries evade US sanctions. In this case, a decentralized financial system emerges that is not controlled by the United States and copies the functions of the dollar.

According to Chainalуsis, Russia and other sanctioned countries use various methods to circumvent international financial sanctions.

“Putin called on Russia to ‘seize the moment’ in regulating cryptocurrencies, highlighting their growing role in global payments and their potential to reduce dependence on the US dollar.”

Chainalуsis report

The report emphasizes that the country is actively developing the infrastructure to use cryptocurrencies in international trade to bypass Western restrictions. The Central Bank of Russia is leading this process and overseeing the testing of transactions with digital currencies.

Also, according to experts, Russian centralized crypto exchanges may soon be able to process cross-border payments. Local governments can also benefit from services such as Garantex, officially or unofficially.

The West is trying to stop Russia

Amid the rise of cross-border payments in stablecoins, the US Treasury Department has called on Congress to give it more authority to control cryptocurrency exchanges registered abroad and stop sanctions evasion, including those issued by Russia.

Russia is increasingly turning to alternative payment mechanisms, including stablecoins, to circumvent sanctions, US Deputy Treasury Secretary Adewale Adeyemo said ahead of the Senate hearing on illegal financial transactions.

The US and the UK, among others, control crypto transactions worth more than $20 billion, according to Bloomberg. According to sources, the transactions were carried out through the Russian crypto exchange Garantex using USDT.