Russia’s Plans to Replace the Dollar Are Going Nowhere

BRICS countries show little interest in Moscow’s proposal for an alternative financial system.

By Agathe Demarais, FOREIGN POLICY

Browsing through the official photos of the annual BRICS summit in the Russian city of Kazan last month yields intriguing surprises. In several of them, Russian President Vladimir Putin holds a mock-up banknote featuring the flags of the five core BRICS countries—Brazil, Russia, India, China, and South Africa. Looking at the pictures, one could be forgiven for assuming that the BRICS had just launched a common currency. This is exactly what Moscow would like the world to think as part of its bid to demonstrate that Russia is far from isolated on the global scene.

To the Kremlin’s chagrin, however, things did not go according to plan in Kazan. No BRICS currency was launched, and the official captions to Putin’s pictures do not even mention the banknote. The Kremlin also failed in its efforts to push for the adoption of BRICS Bridge, a financial mechanism that would help the group’s economies bypass Western channels. Interest from other BRICS members was so lukewarm that the scheme did not even make it into the final summit communiqué. Russia is unlikely to stop pressing, however: Developing non-Western financial mechanisms is an almost existential imperative for Moscow—and it highlights how finance has become a new arena for great-power competition.

In Kazan, the Russian summit hosts had a simple goal: to launch as many financial schemes as possible in order to mitigate the impact of Western sanctions on Moscow. Proposals include BRICS Pay (a scheme that would allow visitors from BRICS countries to make payments in Russia); BRICS Clear (an attempt to circumvent Euroclear, Clearstream, and the other Western firms that provide the global infrastructure for trading securities, such as stocks and bonds); BRICS (Re)Insurance (a bid to mitigate restrictions on the provision of insurance for Russian-owned aircraft and ships); a BRICS ratings agency (an alternative to the Western giants Standard & Poor’s, Fitch, and Moody’s); and the BRICS Cross-Border Payments Initiative (a scheme to facilitate payments between BRICS countries in their own currencies, such as the Russian ruble or the Brazilian real).

All five mechanisms matter, but attendees in Kazan quickly understood that Russia cared even more about a sixth scheme—BRICS Bridge. The project’s goal is both simple and ambitious: getting rid of intermediaries for international transactions made with central bank digital currencies (digital coins issued by central banks and stored on mobile phone wallets). To understand BRICS Bridge, picture a long-haul flight between, say, India and Brazil. Instead of having to go through an airport hub (a correspondent bank that is often located in the United States), these systems allow payments to make a direct trip between Indian and Brazilian banks. The benefits of going direct are obvious: Financial transactions do not need to make a stopover in a correspondent bank likely to be located in the United States or go through Swift, the Western-controlled global payment system between banks.

The symbolic dimension of BRICS Bridge is massive. As Brazilian President Luiz Inácio Lula da Silva said in 2023, “Every night, I ask myself why all countries have to base their trade on the dollar. Why can’t we do trade based on our own currencies?” This is not only about countries wondering why they need to settle cross-border trade using the greenback instead of their own currencies. Another aspect of the frustration is linked to the dollar being the currency of choice for issuing sovereign debt, putting developing economies at the mercy of the monetary policy of the U.S. Federal Reserve.

Bypassing Western financial channels also offers a layer of protection against sanctions from G-7 countries and their allies, since in most cases those sanctions only bite if the sanctioned country’s firms use Western currencies or have ties to G-7 economies. This highlights how BRICS Bridge is part of the effort by the West’s adversaries to sanctions-proof their economies by ditching Western currencies (in addition to reverting to old-fashioned barter, Russia now settles around 80 percent of its international trade in non-Western currencies) and building alternatives to Swift (like China’s homemade mechanism, CIPS). Dodging Western financial mechanisms also makes it easier to hide sensitive transactions that could trigger U.S. secondary sanctions, such as Chinese sales of military gear to Russia.

A final advantage of BRICS Bridge has to do with its digital nature. BRICS central banks could easily program a digital mechanism so that it blocks transactions that run counter to their interests or, in extreme scenarios, restricts Western access to their markets. Even short of these scenarios, the digital nature of BRICS Bridge would make it easier for surveillance-heavy dictatorships like Russia or China to track international transactions. By pressing ahead, BRICS economies could also be seeking a first-mover advantage in establishing a digitalized global financial architecture—betting that controlling emerging standards in the sector will enable them to weaponize global finance in the future.

Considering the potential benefits of BRICS Bridge, it may look surprising that Russia’s push for the mechanism’s adoption was met with lukewarm reception in Kazan. Moscow’s initial plans were to trial the scheme in 2025 before fully launching it around 2027. The fact that this timeline now looks unrealistic did not come as an entirely unexpected development for Moscow. A few weeks before the summit, China, India, and South Africa had already skipped a BRICS finance ministers’ meeting that was supposed to talk about the scheme.

The reluctance of other BRICS economies to get on board highlights three reasons why the development of non-Western financial mechanisms is unlikely to prove straightforward.

The first obstacle has to do with BRICS members’ diverging views of the urgency of such plans. At one end of the spectrum, Russia is the most enthusiastic backer of BRICS Bridge; the country has nothing to lose as Western sanctions already restrict its access to Western payments schemes. Other BRICS members are less convinced. China is doing preemptive work to have backup plans in case it were to be cut off from Swift or Western currencies, but it has no interest in ditching the dollar or Western financial channels any time soon. Meanwhile, Brazil’s plans to de-dollarize appear to have more bark than bite. South Africa and India are even less eager to connect to BRICS Bridge; bankers in both countries are uneasy about getting too cozy with non-U.S. financial initiatives for fear of antagonizing their Western partners.

A second factor hindering the development of BRICS Bridge is that the system can work only if all BRICS countries issue their own digital currencies. They are far from that point. Among them, only China has both a pilot digital currency in circulation—the digital renminbi—and the infrastructure in place for cross-border payments—through mBridge, a scheme that appears to have inspired the architecture of BRICS Bridge. (Shortly after the Kazan summit, the Bank of International Settlements, which led the development of mBridge, announced that it was withdrawing from the project after media reports suggested the scheme could help dodge sanctions.) Yet China’s extensive capital controls that restrict cross-border transactions will hamper the global rollout of the digital renminbi, including for use among the BRICS grouping. Without China on board, the mechanism is unlikely to have much global clout.

Basic economic theory highlights a final difficulty. With BRICS countries registering trade imbalances among themselves, it is hard to imagine how, say, Russian oil firms would not end up with huge piles of digital rupees for their sales to India. The issuance of a common BRICS currency would prevent such an issue. However, plans for what has been dubbed the “R5” (a potential joint currency replacing the rand, real, renminbi, ruble, and rupee) or for the “unit” (a potential gold-backed digital currency) can be dismissed as far-fetched for now if BRICS countries cannot even agree on launching BRICS Bridge. This looks a bit like a chicken-or-egg problem: BRICS Bridge is unlikely to launch before the five major BRICS economies have a common digital currency, but launching such a currency is useless if BRICS Bridge is not operational. As long as the BRICS countries do not come to a political agreement on the need for BRICS financial systems, these debates could last for a while.

Should Western policymakers lose sleep over BRICS Bridge? Russia’s invasion of Ukraine in February 2022 has turbocharged the fragmentation of the global trade landscape between geopolitically aligned blocs. It is therefore no surprise that financial systems are becoming increasingly geopolitical, as well. The threat posed by such schemes may be overestimated in the short term, since the dollar and Swift are nowhere near losing their global hegemony. However, we can bet that non-Western financial mechanisms will become more mainstream in the long run, further fueling the fragmentation of the global financial landscape. Perhaps the only certainty is that Russia will continue to pretend that it is successfully leading efforts to launch BRICS financial schemes—even when there are none to write home about for now.