Putin for creating parallel SWIFT system to break US dollar dominance

Moscow: Russian President Vladimir Putin has said the multi-nation BRICS group should explore a SWIFT-like cross-border payments system immune to Western sanctions as well as use national digital currencies in financing investment projects to end US dollar dominance.

Ahead of the 16th annual summit of leaders of BRICS to be hosted by Russia, Putin also said the time has not come yet for a common BRICS currency but added that the 10-nation bloc is exploring the use of digital currencies for which his country is working with India and other nations.

Russia, which was slapped with sweeping sanctions by the US and its allies in the aftermath of the conflict with Ukraine that erupted in February 2022, wants to circumvent the global financial system by creating a new payments system based on a network of commercial banks linked to each other through the BRICS central banks.

Advocating a cautious approach in creating a new reserve currency due to differences in the structure and quality of the economies of the BRICS member states, Putin said these countries should focus on the use of the national currencies, new financial instruments and the creation of an analogue of SWIFT.

Prime Minister Narendra Modi is scheduled to attend the summit in the Tatarstan city of Kazan on October 22 and 23.

It will also be the first ever summit of the grouping after its expansion with the entry of Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE). Brazil, Russia, India, China and South Africa are the original members of the BRICS.

“At this point of time it (a BRICS currency) is a long term prospect. It is not under consideration. BRICS will be cautious and act gradually, move slowly. The time has not come yet,” Putin told a select group of senior editors from the BRICS member states at a media interaction on Friday at his official residence in Novo-Ogaryovo, about 50 km from Moscow.

The Russian strongman's remarks came in reply to a question about plans by the BRICS -- a grouping conceived as a geopolitical and geoeconomic counterweight to the West -- to create a reserve currency.

Replying to a question, Putin said the BRICS was now studying the possibility of expanding the use of the national currencies and creation of instruments that would make such work safe. In particular, the BRICS states were considering the possibility of using electronic instruments, he added.

“We are looking into the possibility of expanding the use of national currencies and settlements, and want to establish the tools that would make this safe and secure enough.” Putin said the grouping will have to come up with a toolkit that will be under the supervision of the respective BRICS institutions.

“It may be another very good step in the development of the Global South with our direct active engagement. We will be talking about that during the (Kazan)summit. We are already in consultations with the Chinese and the Indian friends with the Brazilians. Also, we have had a round of consultations with South Africa.” On a potential BRICS reserve currency, Putin said the member states needed to work gradually without haste.

“Considering their population the BRICS economies in terms of structure should be comparable and more or less equal. Otherwise, we will face even bigger issues than those that occurred in the European Union (EU) for one when a single currency was introduced to the countries whose economies were not comparable and not equal. So it is a long term prospect,” he said.

The Russian president also underlined the need for establishing relations between the central banks and to ensure reliable exchange of financial information that is independent of those international instruments of international information exchange that introduce “certain restrictions for political reasons and violate the principles of global economy.” He said he was referring to the formation in BRICS of an analogue of SWIFT, something that “ensures international settlements.” SWIFT provides the main messaging network through which international payments are initiated.

Putin mentioned that Russia, along with other BRICS members, has already been working on a SWIFT-like financial messaging system and the use of national digital currencies in financing high-growth investment projects.

Alongside digital currencies, the BRICS bloc is preparing to launch the BRICS Pay platform, a blockchain-based payment system aimed at facilitating cross-border transactions within the alliance. Noting that digital currencies could benefit both BRICS members and developing economies, Putin highlighted the group’s broader strategy to reduce reliance on the US dollar and assert greater economic independence.

“I think the United States needs to give it a thought that they have spoiled the relationship with Russia by imposing continuous sanctions, and it has a negative impact eventually on them. So the entire world is thinking whether dollar is worth using,” he said.

“Now the volume of dollar is reducing, both in settlements and in reserves too. Even traditional allies of the US are reducing their dollar reserves,” Putin claimed.

He also said that 95 per cent of all the external trade of Russia is denominated in national currencies. The BRICS countries, among other things, are pressing for global governance reform, creating parallel institutions to compete with established ones and contesting the role of the dollar.

While countries like Russia and China are seeking to create an alternative global financial and technological system to circumvent the US dollar dominance as part of what is known as a de-dollarisation agenda, the Indian stand has been that it will not target the US dollar.

India has made it clear that it has no plans to end its reliance on the US dollar. External Affairs Minister S Jaishankar recently said India is not interested in the de-dollarisation agenda and that it will use the US dollar wherever it is accepted as a form of payment.

He also made it clear that “there is no malicious intent towards the US dollar”.

“We have never actively targeted the US dollar. This is not part of our economic, political or strategic policy. Some others (BRICS members) may have done this (de-dollarisation). We have a natural concern. We often have trading partners who lack dollars for transactions,” he said at a recent event.

With the entry of the five new members to create a BRICS plus (BRICS+), the grouping has emerged as a formidable economic bloc. It now accounts for half of the world population, 38 per cent of the global GDP and 40 per cent of the global trade, according to available data.