Russia and India have approached the SA government about the possibility of interlinking payment infrastructure for settlement in their own currencies, but the Reserve Bank has proposed that attention be given to other priorities.
The move by Russia and India comes amid discussions within the Brics grouping about avoiding the use of third currencies in transactions and to rather embed settlement in their own currencies. This is in line with the Brics’ wish to lessen the dollar’s dominance over their economies — a sentiment mirrored in the replacement of dollar-based trading by a number of developing countries.
Russia’s approach also comes in the context of the sanctions imposed by the West against it because of its war in Ukraine. This has involved the freezing of hundreds of billions of dollars of Russia’s foreign reserves and its virtual exclusion from the global banking system
The Bank proposed that the Brics collective give priority to executing building blocks relating to setting a common vision and agreeing on data-exchange standards in the first instance. Those would lay the foundation for interlinking that would be pursued next while SA focuses on its regional and African continental interlinking initiatives.
Interlinking payment infrastructures in own currencies with Russia and India would mean that currencies such as the dollar would not be used as the intermediate currencies for transactions, and there could be a direct conversion of a transaction conducted in roubles or rupees into rand.
Alignment
For this to happen, payment infrastructure components (which include business processes, technical infrastructure to facilitate payments and regulatory arrangements) have to be aligned and integrated.
SA has an interlinked payment infrastructure with dominant trading and tourist partners such as the UK and countries in Europe. This means that a transaction, for example in euros, by an SA banking client is immediately converted into rand without first being converted into dollars — at a higher fee — as would happen for example for Zambian kwacha transactions.
For this to happen, however, banks in SA, Russia and India would have to have confidence in the currencies of their linked partner countries for them to hold balances in these currencies, the head of the national payment system at the Reserve Bank, Tim Masela, emphasised in an interview.
It would also require the number of transactions in the foreign currency justified the holding of such currency accounts by banks.
Masela said the Reserve Bank was concentrating its efforts on interlinking payment infrastructure among the 15 countries in the Southern African Development Community (Sadc) or in making them more efficient. Focus was also on Africa as a whole to underpin the African Continental Free Trade Area. Both the dollar and the rand are dominant currencies in Sadc countries. Prioritisation is necessary, he said, because of limited resources.
Masela was commenting on a written reply to a parliamentary question by finance minister Enoch Godongwana, who said that the Reserve Bank had advised that interlinking discussions with Russia and India “be held in abeyance until after the several domestic and regional payments initiatives led by the Reserve Bank had been concluded/implemented.
Preliminary discussions
“Preliminary discussions have taken place between the SA Reserve Bank and the central banks of the two countries [with the Indian ambassador to SA being part of the delegation]. The discussion with the Central Bank of the Russian Federation focused on the interlinking of both the retail instant payment systems and settlement systems, while the engagements with the Reserve Bank of India were premised on the settlement systems interlinking, using their respective currencies,” Godongwana said.
He added that the regional payment initiatives included the renewal of the Real Time Gross Settlement System (RTGS) in Sadc, and plans to pursue the integration agenda within the Association of African Central Banks (AACB). “Progress and development will also be driven by the market’s appetite to settle in alternative currencies.”
Godongwana was responding to a question by DA MP Dion George, who wanted to know whether, given the growing global concern surrounding the dominant role of the dollar as the primary reserve currency, and considering the discussions within Brics nations advocating for de-dollarisation to promote financial stability and minimise vulnerability to the US economic and political influence, the SA government had been approached to initiate deliberations regarding adoption of alternative currencies for international settlement purposes.
Godongwana said there had been no direct request from Brics regarding de-dollarisation.
However, agreement had been reached in the Brics Payments Task Force on a number of focus areas for 2023, which included a feasibility study on the development of a common cross-border payments vision and targets; improving access to payment systems by banks, non-banks and payment infrastructures; the harmonisation of data-exchange mechanisms among interlinked systems; and the sharing of information.
It was agreed Brics member countries could bilaterally consider interlinking of payment infrastructures for settlement in their own currencies, while taking into consideration the foundation that would be laid by pursuance of identified building blocks by the Brics collective.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.