Yves here. Before readers reflexively reject the headline message, you will see below that it accurately represents the findings of study published by the prestigious Russian think tank/talking shop Valdai Club. It finds that the US efforts to tighten the sanctions noose are having an effect, even if they fall well below the original “shock and awe” intent of bringing Russia to its knees. Note also that this sort of impact does not apply to the EU’s zillionth, erm, 16th sanctions package. Here the vector is that Chinese banks are afraid of doing business with Russian businesses out of fear of being frozen out of dollar transactions.
Note the article advocates for the implementation of BRICS Pay. But that goes well beyond what was agreed in the Kazan Declaration mere months ago. From its final statement:
65. We reiterate our commitment to enhancing financial cooperation within BRICS. We recognise the widespread benefits of faster, low cost, more efficient, transparent, safe and inclusive cross-border payment instruments built upon the principle of minimizing trade barriers and non-discriminatory access. We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners. We encourage strengthening of correspondent banking networks within BRICS and enabling settlements in local currencies in line with BRICS Cross-Border Payments Initiative (BCBPI), which is voluntary and non-binding, and look forward to further discussions in this area, including in the BRICS Payment Task Force.
66. We acknowledge the importance of exploring the feasibility of connecting BRICS countries’ financial markets infrastructure. We agree to discuss and study the feasibility of establishment of an independent cross-border settlement and depositary infrastructure, BRICS Clear, an initiative to complement the existing financial market infrastructure, as well as BRICS independent reinsurance capacity, including BRICS (Re)Insurance Company, with participation on a voluntary basis
There is no mention of a “BRICS Pay” in this document. This should not be surprising, since some key BRICS members, particularly India, have stressed that they intend to maintain an independent course and will maintain good commercial and foreign policy relations with both the Collective West and BRICS/Global South interests.
John Helmer, in his careful reading of the Kazan Declaration, highlighted the section above and noted:
This is an acknowledgement that there remains little agreement to date among the BRICS members, especially China and India with Russia, on the means for replacing the SWIFT and other payment systems which the US is manipulating to wage direct and indirect economic war. The Declaration buries especially sharp concerns in India over the rupee-rouble trade. The Chinese have now almost cancelled yuan payments with Russia; they deal in US dollars. The Indians are more accommodating but the Russians less so. In Kazan the Indians and Chinese have made it clear that BRICS is nowhere near being an alternative to the Bretton Woods institutions.
A source in New Delhi adds: “as usual pro-Russia commentators in the West are gung-ho because they do not understand the nuance. They don’t need to. They will be right in a few years. The Financial Times and Wall Street Journal understand the nuance and know these issues will be resolved and in five years from now a full alternative to the US dollar will be in play. A new settlement system in which Africans and South Americans can sell their resources to markets ( BRICS plus), earn corrupt kickbacks ( Dubai), draw investment (China), technology ( India), and arms (Russia), and still send their children to Oxford and Cambridge is in the making.”
Helmer did point out that the Kazan Declaration committing the participants to continued negotiations was a step in the right direction.
By Natalya Pomozova, Doctor of Sociological Sciences, Professor at the Russian State University for the Humanities, Leading Researcher at the Centre for Comprehensive Economics and Management at the Higher School of Economics; and Artyom Semenov,Deputy Director of the Higher School of Law, Academic Director of the HSE Programme “Business with China: Organisational, Legal, and Financial Support”. Originally published at Valdai Discussion Club; cross posted from InfoBRICS
Problems with settlements in Russian-Chinese economic relations have seriously damaged bilateral cooperation, causing concern among entrepreneurs. Lost profits for exporters, losses for purchasers, the search for “grey” payment schemes, and rising prices for goods for the end consumer are forcing Russian businessmen to look with caution in the direction of China.
We see how secondary sanctions, which until recently seemed like an ephemeral element of American discourse, are dealing a tangible blow to the “best relations in history” between two sovereign states. It turned out that Washington’s discursive power is so powerful that simple threats are enough to make Chinese banks refuse to accept payments from Russia in any currency, and transfers from other countries and from people with Russian surnames, are subject to additional checks. Transactions of any size, including such large projects as Arctic LNG-2, have come under attack. It is clear that our Chinese partners are acting in a spirit of pragmatism and behaving cautiously, trying to protect themselves from economic problems in cooperation with the US and the EU, whose markets are still of greatest interest to them.
Since 2014, Russia has been attempting to build a financial settlement system independent of Western counterparties, which involves switching to mutual settlements in national currencies and abandoning SWIFT. Successes in the first of these (in 2023, according to Russian estimates, the share of mutual settlements with China in national currencies was 95%) did not ensure the invulnerability of bilateral economic cooperation, since an alternative to the American payment system was never introduced, although the integration of the national SFPS and CIPS has been discussed many times.
The cooling of interest of Russian entrepreneurs in the Chinese market and the search for new external partners as a way out of the current situation for domestic business are also associated with difficulties. Even among friendly countries, their list is very limited for the same reason – Western players can put pressure on them at any time using the same methods.
Taking into account the new input and rapidly changing external circumstances, businesses are looking for ways to solve problems and are using all sorts of “grey” schemes – from attracting payment agents and intermediaries in third countries to barter exchanges. Attempts to work with third-tier local banks in China are still an option for solving business problems in the short term, but they are not always successful.
China has accumulated significant experience working with countries that have been under sanctions for a long time. Financial structures created specifically for interaction with Russia, similar to those that provide settlements with the DPRK and Iran, are the most obvious solution, but require significant time and material resources due to the volume of Russian-Chinese economic cooperation. The only branch of a Russian bank in Shanghai is facing difficulties, and is simply unable to cope with the volume of demand for its services. Even taking into account the plans of Alfa-Bank, Sberbank and Gazprombank to follow its example and open representative offices in China, it is hardly possible to talk about a solution to a problem that has a cumulative effect.
All of the listed options are akin to treating the symptoms rather than the causes of the disease. At the moment, in addition to unreliability, increased transaction costs and other material costs, such a state of affairs causes reputational damage to the parties involved. The discursive policy of the PRC, reflected in the modern foreign policy concepts it addresses to developing countries, is aimed at forming the image of China as the leader of the global South. The track of China’s cooperation with Russian partners is forced to slow down due to Beijing’s pragmatic and cautious policy, since it is necessary to take into account Washington’s threats. In the context of a dynamically changing international situation, developing countries may have concerns – if the United States does not like their policy (external or even internal), will China suspend cooperation with it?
It turns out that the sword of Damocles hangs over the relations of sovereign states – in the event that a country behaves in a way that is unacceptable to Western countries, its external cooperation can be sharply limited, and not only with the help of economic instruments – it turns out that sometimes discursive methods are enough.
Global changes in the system of international relations, the main examples of which are the movement towards multipolarity and the increase in the weight of developing countries in world economy and politics, have become one of the signs of the current historical moment. This trend is reflected, among other things, in the increased interest of countries in organisations without a dominant leader such as BRICS, which already unites 10 states representing 45% of the world’s population. It seems that a turning point has come when the association has a chance to show its significance and effectiveness in terms of solving issues that do not have only an economic but also an ideological dimension for the countries of the world majority. Problems in mutual settlements between Russia and China can be solved by introducing the BRICS Pay system. Based on blockchain technologies, it can become an analogue of SWIFT for transactions in national currencies. Its development has been underway since 2018, [ https://brics-pay.com/ ] and the major banks of the member countries of the association (Sberbank, VTB (Russia), ICBC and Bank of China (China), Petrobras (Brazil), State Bank of India) have already even begun to develop corresponding mobile applications. It is assumed that settlements through this payment system will be carried out via national digital currencies. In Russia, the possibility of settlements with China through the use of digital currencies is being actively discussed, but in order to implement this practice, it is necessary to soften the positions of national regulators on cryptocurrencies.
Thus, the problems that have arisen in the best Russian-Chinese relations in history, are not only important for the economic cooperation between the two countries. In the context of tectonic shifts occurring in the system of international relations, they are acquiring a global dimension. BRICS as an association has received a historic chance to show the world that mantras about genuine multipolarity are not just loud slogans. If the BRICS Pay system is implemented, the countries of the World Majority will be able to conduct economic policy without looking back at third players dictating their terms depending on the political situation. If Russia and China are able to resolve current difficulties by becoming pioneers in the field of cross-border digital mutual settlements, the development of the world economy has a chance to change its vector, the weight of developing countries will increase significantly, and strategic sovereignty will acquire real, not declared outlines.