As part of the effort to build a common system for retail payments and transactions among member nations, the BRICS countries are developing a single payment system, BRICS Pay. These countries intend to launch a dedicated cloud platform that will integrate their national payment systems in the near future. An online wallet with access to these payment systems will be developed, as well as a mobile application similar to Apple Pay that can be installed on smartphones for purchases in any of the five BRICS countries, regardless of the currency in which the payment and money in the buyer’s account are denominated.
Thus, Brazil, Russia, India, China, and South Africa will be able to make external payments using their own national currencies. This is being hailed as a significant step towards de-dollarization.
Innovative payment systems such as Apple Pay and Samsung Pay are already widespread in China and India, and have recently debuted in Russia, where the Mir Pay payment service was launched on 4 March 2019 for Mir card holders; it is now available on Android-based smartphones.
The BRICS Pay contactless payment system will not replicate national payment systems; rather, it will function as a service for integrating the inhabitants of the five BRICS countries’ credit or debit cards to online wallets, allowing them to pay using a smartphone.
Simultaneously, BRICS Pay will boost the popularity of national payment systems, which are gradually replacing Visa and MasterCard. This is especially visible in Southeast Asia, where the Chinese system UnionPay is the market leader, having exceeded Visa in total operations in 2015. Over 6 billion national cards have already been issued by UnionPay.
The magnitude of China’s economy, the sheer size of its domestic market, the quantity of people, and the growth of outbound travel have all contributed to UnionPay’s expanding popularity. Now, the Chinese telecoms company Huawei, in collaboration with the UnionPay payment service, is introducing its own system in Russia: Huawei Pay. Russia will be the second country after China to accept Huawei Pay.
The other BRICS countries’ national payment systems are smaller in scale than China’s, but they have shown promising dynamics. The RuPay payment system in India has already issued 500 million national cards, the ELO system in Brazil has issued 120 million cards, and the Mir system in Russia has issued approximately 50 million cards.
According to the Russian media, the country’s Federal Antimonopoly Service, the Mir national card system grabbed around 5.5 percent of the market for payment systems away from Visa in 2018, as well as 6 percent of MasterCard’s market share. Visa card usage in non-cash payments by Russian citizens fell from 45% to 39.5% of the total market, while MasterCard’s market share fell from 42% to 36%. Mir cards now account for 24.5% of non-cash payment volume; the volume of transactions made using Mir national cards in 2018 was 2.7 trillion rubles.
Why is it critical for the BRICS countries to integrate their financial systems? External settlements utilizing UnionPay non-cash transactions, such as ruble-yuan, currently involve a conversion into US dollars, which mandates the usage of US banks. The fear of sanctions adds additional operational risks to this procedure. Similarly, UnionPay transactions using euro cards are routed through European banks. US protectionism and Trump’s trade battles are driving regional states to establish financial and economic relationships with neighbors and partners outside the “dollar zone.”
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In order for national currency settlements to avoid the dollar, the People’s Bank of China must open currency swap lines with partner banks to promote yuan exchange transactions in regional currency markets. The central banks of Brazil, Russia, India, and South Africa should follow suit. In this event, a settlement mechanism based on a basket of BRICS currencies and a separate financial infrastructure will emerge. This, in turn, will foster global financial system diversification and currency multi-polarity. As a contactless transfer system, BRICS Pay will provide inhabitants of the BRICS countries with a convenient way to perform transactions.
The Chinese Belt and Road Initiative and Russian integration initiatives within the EAEU can serve as a step towards creating a “larger space economy” in which the rules are determined by the region’s leading powers and investment resources are concentrated in their respective national currencies.
Furthermore, the BRICS Pay contactless payment system makes use of the most recent FinTech: technology and innovations that allow it to compete successfully with established banks in the financial services sector. The BRICS countries have an interest in developing FinTech standards and technology for safe data transfers from cellphones to terminal readers.
At one time, the United States and the West’s control of advanced technology, as well as their corporations’ ability to broaden the use of their established standards in the financial sector to reach international markets, resulted in the world being divided into a financially privileged technological metropolis and a periphery. This eroded political sovereignty and maintained the developing world’s poor economic standing.
As a result, any efforts taken by the BRICS countries to develop and maintain their own technology and infrastructure are economically viable and will contribute to the independence of their separate policies and economies.
What is BRICS in Finance?
BRICS is an acronym for Brazil, Russia, India, China, and South Africa. Goldman Sachs economist Jim O’Neill coined the term BRIC (without South Africa) in 2001, claiming that by 2050 the four BRIC economies would come to dominate the global economy. South Africa was added to the list in 2010.
This thesis became conventional market wisdom in the aughts. But there were always skeptics, including some who claimed the phrase was Goldman marketing hype. Goldman closed its BRICS-focused investment fund in 2015, merging it with a broader emerging markets fund. The countries in BRICS operate as a loose organization that seeks to further economic cooperation amongst member nations and increase their economic and political standing in the world.
Brazil, Russia, India, China, and South Africa ranked among the world’s fastest-growing emerging market economies for years, thanks to low labor costs, favorable demographics, and abundant natural resources at a time of a global commodities boom.
It’s important to note that the Goldman Sachs thesis wasn’t that these countries would become a political alliance (like the EU) or even a formal trading association. Instead, Goldman said they have the potential to form a powerful economic bloc, even acknowledging that its forecasts were optimistic and dependent on significant policy assumptions.
Still, the implication was that economic power would bring political power, and indeed leaders from BRICS countries regularly attended summits together and often acted in concert with each others’ interests.
In 2001, Goldman’s O’Neill noted that while global GDP was set to rise 1.7% in 2002, BRIC nations were forecasted to grow more quickly than the Group of Seven; the seven most advanced global economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the U.S. In the paper “Building Better Economic BRICs,” O’Neill outlined his view of the potential of the BRIC nations.
In 2003, O’Neill’s Goldman colleagues Dominic Wilson and Roopa Purushothaman followed up with their report “Dreaming with BRICs: The Path to 2050.” Wilson and Purushothaman claimed that by 2050, the BRIC cluster could grow to a size larger than the G6, and the world’s largest economies would therefore look drastically different in four decades. That is, the largest global economic powers no longer would be the richest, according to income per capita.
In 2007, Goldman published another report, “BRICs and Beyond,” that focused on BRIC’s growth potential, the environmental impact of these growing economies, and the sustainability of their rise. The report also outlined a Next 11, a term for 11 emerging economies, in relationship to the BRIC nations, as well as the ascendancy of new global markets.
Growth in the BRICS economies slowed down after the global financial crisis and the oil price collapse that began in 2014. By 2015, the BRICS acronym no longer looked like an attractive investment venue, and funds aimed at these economies either shut down or merged with other investment vehicles.
Goldman Sachs merged its BRICS investment fund, which was focused on generating returns from these economies, with the broader Emerging Markets Equity Fund. The fund had lost 88% of its assets from a 2010 peak. In an SEC filing, Goldman Sachs stated that it did not expect “significant asset growth in the foreseeable future” in the BRICS fund. Per a Bloomberg report, the fund had lost 21% in five years.
BRICS operates as an informal grouping of nations that meet annually at the BRICS convention, where members and heads of state seek to further economic cooperation between the nations. The head of state of a member nation acts as the chairman of the group, rotating once a year.
The group sees itself as a counter to the traditional Western-led global order, with many member states seeing the organization as a way to boost their influence around the world. Still, many of the nations disagree on fundamental factors, such as transparency and a balanced approach, which may hinder the growth of the group.
Because of the economic power of the nations, as well as the idea of disentangling from the West to a degree, BRICS claims that over 40 countries seek to join the group. In 2023, additional countries were invited to join. These countries are Saudi Arabia, Iran, Ethiopia, the United Arab Emirates, Egypt, and Argentina.
Can People Invest in BRICS?
A BRIC ETF is an exchange-traded fund (ETF) that invests in assets related to the BRIC countries of Brazil, Russia, India, and China. BRIC ETFs are passively managed, which means that the investments they make reflect the holdings of a broad underlying index and are not at the discretion of a portfolio manager. Shares of a BRIC ETF, like business stock, trade on a stock exchange and provide investors with access to these economies through exposure to stock, fixed income, currency, and other markets. Securities in these markets are often traded on local stock exchanges or through American and global depositary receipts (GDRs).
The ETF market makes it possible and easier for average investors to invest in overseas markets without encountering big fees, limited options, and red tape. These funds, which are listed on exchanges and traded throughout the day just like ordinary stock, offer the possibility to mimic the performance of the broader equity market, a specific sector, or a trend by mirroring the holdings of a designated index—a hypothetical portfolio of securities representing a particular market or a segment of it.
BRIC ETFs are designed to give investors diversified exposure to Brazil, Russia, India, and China, which are generally considered to be the four largest emerging market economies. Assets are invested in locally issued stocks and shares that trade on exchanges in the United States and Europe. They may carry slightly higher expense ratios than funds focused on the U.S. and Europe due to the higher costs of investing directly in these foreign stock markets.
The portfolio allocation among the four counties varies from fund to fund, but all ETFs in the space should be passively invested around an underlying index, such as the MSCI BRIC Index, whose 876 constituents cover approximately 85% of the free float-adjusted market capitalization in each country.
While there were multiple choices for investors, there is one of these ETFs trading in the U.S. Offered by iShares, it was established in November 2007 and has $70.2 million in assets. It is heavily weighted in financials (20.66%), consumer discretionary (20.55%), and communication (12.73%) with a total of 633 holdings.2 An important point to note, though, is that iShares changed the name from iShares MSCI BRIC ETF to iShares MSCI BIC ETF in March 2022. Russian securities were dropped from the portfolio in response to the economic sanctions placed on the country following its invasion of Ukraine.
A fund can qualify as a BRIC ETF even if it is not invested in all of the four countries that make up the acronym. At one point in time, there were many BRIC ETFs invested in all four nations. Then, as the idea of BRIC as a hot market set waned, these funds disappeared. In essence, the concept of BRIC as a singular entity has gradually faded from popular thought over the years as the economic performances of these four nations diverged.