How Putin proposed to ‘destroy the US dollar’ and what digital assets have to do with it?

At the BRICS summit in Kazan, Russian President Vladimir Putin discussed the creation of a new financial system aimed at moving away from the U.S. dollar. He stated that the idea of a single currency was not yet relevant, as it would require a high level of integration between the BRICS nations’ economies, which is not currently in place.

However, Russia did propose the use of digital currencies for investment purposes within the BRICS bloc. Finance Minister Anton Siluanov clarified that this involved a new payment system for BRICS, including a financial messaging platform and infrastructure for digital financial assets.

Chinese President Xi Jinping also highlighted the need for new digital platforms and proposed a new international payment system called BRICS Pay, which would leverage blockchain technology and Central Bank Digital Currencies (CBDCs).

How the new payment system might work

Among the key initiatives, the BRICS countries are exploring the use of digital currencies backed by fiat money. This would enable central banks, rather than correspondent banks with access to the U.S. dollar clearing system, to directly participate in cross-border transactions.

As a result, no country would be able to exclude another from the financial system. Commercial banks would process payments through their respective regulators, eliminating the need for direct bilateral relations with foreign financial institutions.

In October, the Russian Ministry of Finance and the Central Bank unveiled a plan to develop a similar system. According to The Economist, this initiative is inspired by the experimental bridge payment platform created by the Bank for International Settlements (BIS) in collaboration with the central banks of China, Hong Kong, Thailand, and the UAE.

The project participants have reported a significant reduction in transaction time, from several days to mere seconds, as well as a near elimination of transaction costs.

A Change of Direction?

The proposal by the Russian President reflects a shift in response to current global circumstances. Over the past few years, as the idea of creating a single BRICS currency was being discussed, digital technologies have significantly evolved. In Russia, the digital ruble is already undergoing testing for consumer payments and is set to be used for federal budget payments in the near future.

Russian media report that transitioning to digital assets could reduce transaction costs and potentially increase bank revenues by $81 billion annually. This project aligns with Russia’s broader strategy of promoting digital government, which aims to modernize financial systems in various countries. It also involves the integration of payment systems, addressing the valuation of digital currencies, and creating a counterpart to the International Monetary Fund (IMF).

Russia’s Strategy to Bypass Sanctions Through Cryptocurrencies

Previously, financial sanctions presented significant challenges for countries, but with the advent of the internet and cashless payments, the situation became more flexible. The emergence of blockchain technology and cryptocurrencies has opened up even more avenues for bypassing these restrictions.

Stablecoins like Tether (USDT), which is pegged to the U.S. dollar, have effectively established a financial system outside of Washington’s control, allowing countries to circumvent U.S. sanctions. In this case, a decentralized financial system mimics the functions of the dollar but is not subject to U.S. control.

According to Chainalysis, Russia, alongside other sanctioned nations, has been using various methods to overcome international financial sanctions. Russian President Vladimir Putin has emphasized the importance of regulating cryptocurrencies to reduce reliance on the U.S. dollar, recognizing their growing role in global trade and payments.

The report highlights that Russia is actively developing infrastructure to facilitate the use of cryptocurrencies in international trade to sidestep Western sanctions. The Central Bank of Russia is overseeing this process and testing digital currency transactions.

Experts also predict that Russian centralized crypto exchanges may soon facilitate cross-border payments, with local authorities potentially using services like Garantex, whether officially or not.

Western Efforts to Stop Russia

In response to the rising use of stablecoins for cross-border payments, particularly by Russia, the U.S. Treasury Department has called on Congress to grant it expanded powers to regulate cryptocurrency exchanges based abroad and curb sanction evasion.

Ahead of a Senate hearing on countering illicit financial activities, U.S. Deputy Treasury Secretary Adewale Adeyemo stated that Russia is increasingly relying on alternative payment systems, including stablecoins, to circumvent sanctions.

Reports from Bloomberg reveal that the U.S. and the U.K. have been monitoring crypto transactions exceeding $20 billion, many of which were conducted through the Russian crypto exchange Garantex using USDT.