Context:
Written by Shyam Saran, former Foreign Secretary, highlighting China‘s and Brics+ initiatives to promote alternatives to the US dollar-dominated financial system.
Key Developments
China’s Efforts in Cross-Border Digital Currency Systems
- mBridge Project
- A cross-border CBDC payment platform, initially driven by China, Thailand, Hong Kong, and UAE, with support from the BIS.
- Recently strengthened by Saudi Arabia’s membership in June 2024.
- BIS exited after the pilot phase; speculation suggests US pressure.
- The Reserve Bank of India (RBI) and the US Federal Reserve are also partner observers in mBridge.
Brics+ Initiatives
- Brics Bridge
- A parallel, somewhat informal project to mBridge within Brics+ (now expanded to include Iran, UAE, Saudi Arabia, Egypt, Ethiopia, Venezuela, Indonesia).
- Mentioned informally in Russian readouts, though absent in official Brics declarations.
- Brics Clear
- An officially discussed payment and clearing system for Brics+ countries on a voluntary basis.
- Connection: mBridge and Brics Bridge are likely to converge over time, with Saudi participation boosting their momentum.
Growth of the Petroyuan
- Shanghai International Energy Exchange
- Handles 10.5% of global oil trade; oil futures quoted in Shanghai make up 14.4% of global volume.
- Compared to Brent (29%) and West Texas Intermediate (56%).
- Saudi Arabia and the UAE
- Have started settling oil trades in currencies other than the US dollar, expanding the petroyuan market.
- India has also purchased oil from the UAE in rupees, signaling currency diversification in trade.
Proposed Brics Currency – “The Unit”
- Announced at the Kazan Brics Summit (October 2024) by the New Development Bank (NDB).
- Backed by:
- 40% gold
- 60% local currencies of member states.
- Gold will be minted domestically and held in an escrow account, recorded on the Brics Bridge ledger, not affecting central bank balance sheets.
- The gold-currency mix is intended to address concerns over yuan dominance and add credibility.
Broader Geopolitical and Economic Context
- Central banks worldwide are increasing gold reserves and repatriating gold due to fears of US financial sanctions.
- India has repatriated $800 billion from the Bank of England.
- The proposal for the Unit has not yet been officially adopted due to caution and potential US backlash.
India’s Position
- India has been participating in discussions but remains cautious.
- External Affairs Minister S. Jaishankar recently stated that India has “no interest in undermining the US dollar” and sees it as a source of global stability.
- However, with US economic disruptions and trade weaponization (particularly under Donald Trump), India may need to keep its options open and avoid overdependence on the dollar.
With the rise of mBridge, Brics Bridge, Brics Clear, and the petroyuan market, the global financial system is evolving. India must stay flexible and strategic, participating without overcommitment, ensuring it is not marginalized as the global economy shifts.
Source: BS
