Association of Development Finance Institutions of Malaysia's Prasad said balancing Western influence with BRICS has mixed implications for the financial sector.
KUALA LUMPUR: While there are advantages to joining the BRICS (Brazil, Russia, India, China and South Africa) bloc, Malaysia needs to be aware of some risks involved in such a move, an expert says.
Mohd Prasad Hanif, the secretary general of the Association of Development Finance Institutions of Malaysia, noted that the challenges include the lack of cohesion, currency volatility and liquidity risks as well as geopolitical tensions that create regulatory uncertainty.
“The diversity among member countries in BRICS with regards to economic structures, political systems, and developmental stages can make it hard to reach a consensus.
“As you know, China and Russia are very different from Malaysia, so these are going to be big challenges for us to overcome,” he said during the Asian Banking, Finance and Insurance Asia Forum 2024, yesterday.
Last week, Prime Minister Datuk Seri Anwar Ibrahim said Malaysia will soon begin formal procedures to join BRICS. He said the potential membership in BRICS would be of strategic importance given the Strait of Malacca’s position as an important shipping lane connecting the Pacific and Indian Oceans.
Prasad added that balancing Western influence with BRICS has mixed implications for the financial sector.
On the plus side, becoming a member of the intergovernmental organisation meant that there can be greater economic sovereignty for the country by reducing reliance on Western financial systems and the US dollar.
“The BRICS alternative to the Society for Worldwide Interbank Financial Telecommunication (Swift) is a trade settlement system.
“This alternative system will essentially enhance the economic sovereignty and stability for member countries by reducing the impact of US economic policies and sanctions.
“I think this is one of the biggest drivers as to why countries want to move away from Swift; to avoid being sanctioned unilaterally.
“Moreover, when you have a competing alternative system to Swift, countries will be able to negotiate better transaction costs by avoiding currency conversion and intermediary banks, thus fostering greater economic cooperation among BRICS nations,” Prasad said.
Currently, most of the global trade moves through the US dominated payments system Swift, a global messaging system that banks use to securely send and receive information such as money transfer instructions.
However, as Prasad pointed out, the implementation of BRICS’ alternative trade settlement system faces significant challenges as well, including substantial investment in technology, currency volatility and the lack of global acceptance.
“The challenges of currency volatility and liquidity risks associated with using local currencies can increase the complexity of financial transactions and risk management for banks.
“Additionally, coordinating financial regulations and policies among diverse BRICS countries could be difficult, potentially leading to inefficiencies and conflicts as well.
“Further, the lack of established global trust and infrastructure similar to the International Monetary Fund and World Bank can limit BRICS impact and attractiveness to new members,” he said.
Originally founded as BRIC in 2009, with Brazil, Russia, India and China were its original members. The grouping was renamed BRICS when South Africa joined in 2010.
Now, BRICS is made up of Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates.
