BRICS Countries Evaluate Potential of Digital Currencies
By Blokkx Ltd. on Altcoin Academy
Blokkx Ltd. November 2019
At a meeting, the BRICS Association discussed the possibility of digital currency to optimize international trade. With the help of digital currency, states can reduce their dependence on the US dollar and facilitate trade among themselves. The meeting focused on better political and economic cooperation between the five major emerging economies.
According to this report, the Economic Council of States discussed the development of a new payment system. The five-member states can introduce this system to reduce dependence on the US dollar in international financial transactions.
Kirill Dmitriev, General Director of the Russian Direct Investment Fund (RDIF), confirmed to reporters after the meeting that the Forum had discussed the development of a unique cryptocurrency. Although plans to develop such a currency have not yet been finalised, it is already clear that RDIF will be responsible for its development. In further talks, the states now want to clarify whether they will develop such a currency.
New digital currency may not be designed for financial transactions
Nikika Kulikov, a member of the Expert Council of the State Duma and founder of PravoRobotov, also explained to RBC that the digital currency envisaged might not function as a digital form of money.
“Most likely, it will be certain obligations that can be transferred from one legal entity to another to confirm that the recipient has rights and the contractor has obligations for a certain amount. It will not be money. We can say that it will be a paperless flow of documents to facilitate transactions.” — Nikika Kulikov, member of the Expert Council of the State Duma
Accordingly, such a project could be compared to a trade financing platform such as Marco Polo, which recently cooperated with a Russian company. The use of trade finance is considered promising to exploit the potential of distributed ledger technologies — other companies such as We. Trade, TradeWindow or Voltron are already dealing with similar applications.
Optimization of trade offers BRICS efficiency advantages
Such platforms can reduce manual effort and provide participants with an overview of the status and agreement of trade. The use of Smart Contracts also enables automated settlement. As a result, trading obligations can be fulfilled automatically as soon as a certain condition, such as a delivery, is performed.
Also, the new trading system, which is based on the national currencies of the states, could reduce dependence on the US dollar. At the same time, the role of the Russian rouble in trade could be strengthened.
As Dmitriev makes clear, over the past five years, the BRICS have reduced the share of US dollar-based settlements from 92 to 50 percent. In return, the share of rouble-based transactions increased from three to 14 percent.
Comparable projects addressing the role of the US dollar as the leading currency in international trade could gain relevance in the future. One of the most striking examples is the imminent introduction of the digital yuan and the EU’s plan to develop a digital euro. The Libra project developed by Facebook also kept the US authorities on their toes this year. Besides, the introduction of the system could provide an alternative means of payment for the Group’s approximately 2 billion users.
Conclusion: BRICS are also looking into the potential of digital currencies.
The RBC report makes it clear that the BRICS Economic Council is concerned with the potential of digital currencies. Nevertheless, the possible currency should not function as a means of payment but should enable more efficient trade financing. Blockchain experts regard this approach as particularly promising.
Also, such a currency could reduce dependence on the US dollar as the leading international currency. The introduction of the digital yuan, which also attacks the leading position of the US dollar, is also pending in short to medium term. The EU is also discussing the possibility of a digital version of the euro.
The BRICS states could develop their digital currency in the medium to long term. In particular, the increasing economic relevance of these states is the reason for this development. Besides, China is regarded as one of the leading countries in the area of distributed ledger technologies and could support this development. Nevertheless, this currency is not intended for payment transactions but trade financing. As a result, countries can optimize their trade and increase efficiency through automation.
