What does the cross-border payment system mentioned by BRICS mean？

From October 22nd to 24th, the 16th meeting of BRICS leaders was held in Kazan, Russia. In the Kazan Declaration of the Sixteenth Meeting of BRICS Leaders, two key words have aroused widespread concern:

Cross-border payment system

"Infrastructure of Securities Depository Settlement in BRICS Countries"

What exactly do these words mean? What new progress has been made in economic and financial cooperation among BRICS countries? Tan Zhu’s exclusive dialogue with Qiang Jianxin, deputy secretary-general of the Emerging Economies Research Association and dean of the School of Economics and Finance of the Institute of International Relations, takes you to understand the new changes in economic and financial cooperation among BRICS countries.

(1) What is the cross-border payment system and settlement infrastructure?

The cross-border payment system is a cross-border financial infrastructure. We can use a "highway network" as a metaphor. Just like all kinds of trucks and buses are flowing on the expressway network, the cross-border payment system is actually the "expressway" in the international financial field, in which monetary funds flow.

A complete cross-border payment system includes payment instruments, payment institutions (mainly banks) and clearing system. Payment refers to the transfer of monetary funds, or the process of transferring acceptable monetary claims from the payer to the payee. The complete payment process mainly includes three links: transaction, clearing and settlement, and clearing and settlement are specific links in the payment process. Settlement refers to the final transfer and delivery process of monetary funds between the payee and the payer. In the face of a large number of transactions, we can’t settle accounts one by one, so we have to set up a clearing system among countries to settle accounts. Liquidation is the process of matching, transmitting, collecting and sorting out payment information and data, that is, the process and method of clearing off creditor’s rights and debts in multilateral currencies.

The Kazan Declaration dealt with the cross-border payment system according to different links and elements, from the payment currency, the agent bank network for cross-border payment to the "Securities Depository Settlement Infrastructure in BRICS countries", which is actually a specific link from easy to difficult. From this, we can see that the BRICS countries have not only macro and ambitious system goals, but also concrete measures with strong operability and reality.

(2) What are the current cross-border payment systems in the world?

The current cross-border payment system is actually a composite system, which mainly includes two parts: the cross-border payment system denominated in domestic currency and the cross-border payment message information transmission system. The former is represented by the clearing house interbank payment system (CHIPS) in New York, and the latter is represented by the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

Cross-border payment system involves central banks and commercial banks in various countries, as well as related information and technical support institutions. The interbank payment system (CHIPS) of Clearing House in New York, USA, is the largest private payment and settlement system for US dollars in the world at present, handling about 95% of global cross-border US dollar transactions. The SWIFT system does not play the role of paying or transferring monetary funds, but its main function is the transmission of transaction information. Therefore, the cross-border payment systems in various countries need such a message information transmission system to form a complete cross-border payment system.

(3) What are the main problems in the current cross-border payment system?

First of all, the cost of the mainstream cross-border payment system is higher now, because there are so many nodes involved in the whole process. For example, if an enterprise between the two countries wants to conduct a transaction, it must at least involve the central banks, commercial banks and other agencies and complex links between the two countries. This also indirectly leads to the problem of low efficiency.

Secondly, the existing cross-border transactions involve the issue of currency selection, and the vast majority of transactions are conducted in US dollars. For countries whose transaction currency is not their own currency, there is a risk of exchange rate changes, which may affect financial stability.

In addition, the current cross-border payment system also shows the problem of insufficient inclusiveness. This is mainly because the mainstream cross-border payment system is highly dependent on the functions of banks and requires the popularization of bank outlets in business operation. Therefore, in many small villages and some underdeveloped areas in the world, especially in low-income countries, their banking networks are often not so developed, resulting in many people unable to use this system for cross-border transactions.

On the other hand, over-reliance on a single payment system also has security problems. Once the cross-border payment system is cut off, it is equivalent to the "highway" of a country’s foreign trade being cut off.

(4) What problems will the BRICS countries focus on in economic and financial cooperation?

To further promote cooperation in the economic and financial fields among BRICS countries, it is necessary to consider improving the existing payment system, give full play to the advantages of latecomers, and use the more advanced technologies to overcome the problems existing in the current system.

Ushakov, foreign policy adviser to the Russian President, said in an interview that the cooperation among BRICS countries in cross-border payment system will be based on advanced tools such as digital technology and blockchain. This will effectively solve the problems of low efficiency, high cost and insufficient inclusiveness in the current cross-border payment system. The establishment of a common cross-border payment system in BRICS countries will be a steady and gradual process, and its prospects need further observation.