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The Basel-based Bank of International Settlements (BIS) is poised to drop cooperation with the mBridge financial settlements system, in a move that would delay the introduction of any alternative financial settlements system to SWIFT.
mBridge has been developed by the Central banks in China, Thailand, Hong Kong, and the UAE, and has recently and successfully concluded a pilot testing phase. It went live in June with the UAE using it to transfer Dirhams to China. The mBridge architecture is the backbone of what would become the proposed ‘BRICS Pay’ financial settlements system and is designed to facilitate international payments without routing through U.S. banks. It has been a central discussion point among Central bank and finance chiefs at the recent IMF, World Bank and BRICS summit meetings.
We previously discussed how mBridge works here and the BRICS Pay system here.
The BIS is an international financial institution which is owned by member central banks. Its primary goal is to foster international monetary and financial cooperation while serving as a Central bank ‘banker’. Its initial purpose was to oversee the settlement of World War I war reparations. It also provides banking services, but only to Central banks and other international organizations.
The BIS members are the Central banks of 63 jurisdictions: 34 in Europe, 16 in Asia, 5 in South America, 3 in North America, 3 in Africa, and 2 in Oceania. The United States is represented by two members, the United States Federal Reserve System and Federal Reserve Bank of New York. The Central Bank of Russia is a member but has been suspended since March 2022.
Of its 63 member banks, 40 are on Russia’s ‘unfriendly nations’ list while the governing board of directors is dominated by pro-Western countries – only Brazil, China and India are considered ‘Russia friendly’. This means that the potential for the BIS to cease cooperation with mBridge is very likely.
The BRICS intention has been to declare a cooperative effort to de-dollarize its mutual trade – estimated at being US$678 billion in 2023 and compromising 20% of the global total. Based on the mBridge platform, the new BRICS Pay concept would see countries use their sovereign currencies directly as opposed to the SWIFT system and monitored by the BIS.
However, the BIS General Manager, Agustin Carstens, stated this weekend that the BIS won’t back projects directly linked to sanctioned countries.
Implications
Should the BIS cease working with mBridge, it will create unease amongst at least 30% of its members and further raise profound opinions globally that the collective West continues to insist that the global community must only use its own systems. This has previously been accepted, but there is increasing resistance to this viewpoint given the non-Western view that the manner in which the West has imposed sanctions upon Russia, and begun taking Russian assets. There are concerns that Western systems do not always conform with international laws and could be used against them should they not follow Western instructions.
The perception that the United States has grown into becoming the sole arbitrator of global institutions without any recourse is gaining popular ground. Should the BIS drop mBridge, and effectively prevent the capability for countries to trade their own currencies with whomever they choose, the longer term, global political fallout could be damaging.
The future for mBridge, in the event that the BIS ends cooperation with mBridge, is that the BRICS nations concerned go it alone. The four founding mBridge developers are all BRICS aligned, while the full BRICS Heads of State endorsed the BRICS Pay concept in articles 64-67 in their recent ‘Kazan Declaration’.
The United States could also respond with sanctions against countries using mBridge, which would mean a trade war with China. Donald Trump has suggested he would do just this, and impose 100% tariffs on imported goods from any country that used ‘de-dollarisation’ tactics.
Whether the United States and the collective West are prepared to instigate such a move remains unclear. But what is evident is that Western sanctions upon Russia are now morphing into a global battle over the right concerning sovereign independence within global financial systems.
Further Reading
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