On de-risking and de-dollarizing intra-BRICS trade via smart contracts

Abstract

This study explores the existing systemic barriers to intra-BRICS national currency use (“de-dollarization”) in currency swaps and trade finance. The author examines the current de-dollarization initiatives, as well as the actual levels of de-dollarization in Russia’s intra-BRICS settlements (as a representative sample), to find gaps between de-dollarization goals and current initiatives and offers a near-term phased solution to overcome these gaps and de-risk trade within BRICS. It is found that 1) the New Development Bank’s Contingency Reserve Arrangement has built-in systemic barriers which are preventing direct currency swaps between BRICS member states; 2) the Euro is replacing the Dollar as Russia’s preferred settlement currency within BRICS, indicating a gap between Russian traders’ settlement currency choice and BRICS de-dollarization priorities; and, furthermore, 3) while payment and settlement systems are being integrated and FinTech applications are being explored, efforts to fundamentally address the systemic market factors preventing national settlement use are missing. A phased solution is proposed to address the fundamental market barriers to national currencies by using smart contracts to de-risk intra-BRICS trade. Specific mechanisms are outlined to promote trade contracts in national currency and reduce dependency on both the Dollar/Euro and Western institutions (such as the IMF and Western commodities markets), a high-level architecture is proposed, and implementation considerations are discussed.