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BRICS flexes muscles as it challenges US dollar – Industry roundup: 25 April

BRICS prepares to step up competition with US dollar

Nineteen countries have expressed an interest in joining the BRICS group of emerging economies as ahead of its annual summit in South Africa on 2-3 June.

Since its formation by Brazil, Russia, India and China as the BRIC in 2006, the group has only admitted one new member – South Africa in 2010.

The upcoming meeting in Cape Town will consider the addition of new member countries said Anil Sooklal, South Africa’s ambassador to the group, in an interview. “What will be discussed is the expansion of BRICS and the modalities of how this will happen,” he confirmed. “Thirteen countries have formally asked to join and another six have asked informally. We are getting applications to join every day.”

Argentina, Iran, and Algeria have formally applied to join the extended BRICS+ group, according to Russian Foreign Minister Sergey Lavrov, who has said that Egypt, Turkey, Saudi Arabia, the UAE, Indonesia, Argentina, Mexico, and several African countries have also shown interest in joining the growing network.

Meanwhile the New Development Bank (NDB) – aka the BRICS Development Bank – established by the group in 2014, is moving away from the US dollar in international trade. Reports suggest that in addition to the five core BRICS nations, the NDB has extended its membership to include Bangladesh, Egypt, and the United Arab Emirates. Uruguay is in the process of joining the bank, while several other countries have expressed interest.

NDB President Dilma Rousseff has confirmed that the bank plans to provide 30% of loans in local currencies of its member nations, effectively moving away from using the US dollar in international trade.

Rousseff, who served as Brazil’s president from 2011 until her impeachment in 2016 and took over the NDB leadership last month, believes that utilising local currencies is essential in reducing dependency on the US-dominated World Bank and the USD.

The use of local currencies will help the BRICS countries avoid foreign exchange risks and financial shortages that may hamper long-term investments.

During an April 14 interview with Chinese media outlet CGTN, Rousseff shared her vision for the NDB’s currency strategy. “It is necessary to find ways to avoid foreign exchange risk and other issues such as being dependent on a single currency, such as the USD,” she said. Under this initiative, the NDB will commit 30% of its loan book to be financed in the currencies of BRICS member countries.

Rousseff cited China and Brazil as prime examples of countries that have already embraced trading in their respective currencies, the Chinese yuan (CNY) and the Brazilian real (BRL.

Rousseff stressed that local currency financing would be “extremely important to help our countries avoid exchange rate risks and shortages in finance that hinder long-term investments.”

The NDB’s decision to pivot towards local currencies reflects a growing challenge the US dollar’s dominance. Incumbent Brazilian President Luiz Inacio Lula da Silva, who attended Rousseff’s swearing-in ceremony in Shanghai, called for the creation of “a world with less poverty, less inequality, and more sustainability.”

Rousseff stressed the need for an anti-crisis mechanism that is counter-cyclical and supportive of stabilization, particularly given the threat of high inflation and restrictive monetary policies in developed countries.

South African International Relations Minister Naledi Pandor shared that the BRICS group is discussing the development of a fairer monetary exchange system to weaken the dominance of the USD

The current systems favour wealthy countries, creating challenges for nations like South Africa that must make payments in dollars at a higher cost.

The NDB’s push for local currency financing marks a significant shift in the global financial landscape, further challenging the supremacy of the US dollar and paving the way for increased financial independence for the BRICS countries and beyond.


PBoC and MAS unite to promote sustainable finance

The central banks of China and Singapore have set up a joint task force aimed at aligning their countries’ green taxonomies and deepening their access to each other’s green bond markets.

The People’s Bank of China (PBoC) and the Monetary Authority of Singapore (MAS)announced the establishment of the China-Singapore Green Finance Taskforce (GFTF) at a meeting in Chongqing, southwestern China on April 21. Members of the GFTF discussed joint initiatives aimed at boosting green and transition financing flows between the two countries.

The collaboration and MAS’s recent moves to promote green finance evidence how the “net zero” agenda continues to be a dominant theme in international finance.

While geopolitical conflicts and controversies about rising energy prices have made moves to a net zero target controversial at times, countries continue to make a play of their low-carbon energy policies. Part of the focus of policymakers in recent years has been to counter what is called “greenwashing”, or making investments and business conduct look greener than they are.

At the Chongqing inaugural meeting, the GFTF discussed joint initiatives aimed at scaling up green and transition financing flows between Singapore, China and the region. The GFTF will establish three initial workstreams to focus on the topics of taxonomies and definitions; products and instruments; and technology.

The GFTF is co-chaired by MAS’ assistant managing director (development and international) and chief sustainability officer, Gillian Tan, and chair of the China Green Finance Committee, Dr Ma Jun. Members comprise senior representatives and sustainable finance experts from financial institutions and green fintch companies from Singapore and China.

“The GFTF provides a platform for knowledge exchange and will galvanise collaboration between public-private participants from China and Singapore on concrete initiatives that will catalyse capital flows to support a credible and inclusive transition to a low carbon future for our countries and the region,” Tan said.

MAS has also launched the Finance for Net Zero (FiNZ) Action Plan, which outlines its financial mobilisation initiatives for stimulating Asia's net zero transition and decarbonisation operations in Singapore and the region.

The FiNZ Action Plan sets out MAS’ strategies for mobilising financing to catalyse Asia’s net zero transition and decarbonisation activities in Singapore and the region. It expands the scope of MAS’ Green Finance Action Plan launched in 2019 to include transition finance. Transition finance refers to investment, lending, insurance, and related services to progressively decarbonise areas such as power generation, buildings, and transportation.

During the launch of the plan at the National University of Singapore's Sustainable and Green Finance Institute, Deputy Prime Minister and Finance Minister Lawrence Wong pledged: “We will put in place safeguards to mitigate the risks of transition-washing, so it’s not just greenwashing, transition-washing is also a risk.”


Chile follows Mexico in nationalising its lithium reserves

Chile’s President Gabriel Boric has announced plans to nationalise the country’s lithium industry – the world's second-largest producer of the metal essential for electric vehicle (EV) batteries – to boost its economy and protect its environment.

The news will be unwelcome for EV  manufacturers seeking to secure supplies of battery materials, as more countries protect their natural resources. Mexico nationalised its lithium deposits in February 2023, and Indonesia banned exports of nickel ore, a key battery material, in 2020.

Chile, which has the world's largest lithium reserves, will in time transfer control of the country’s vast lithium operations from industry giants SQM – formerly Sociedad Quimica Y Minera de Chile – and US group Albemarle, which supplies Tesla, to a separate state-owned company. SQM’s contract is set to expire in 2030 and Albemarle’s in 2043.

“This is the best chance we have at transitioning to a sustainable and developed economy. We can't afford to waste it," Boric said in an address televised nationwide.

Future lithium contracts would only be issued as public-private partnerships with state control, he added. The government would not terminate current contracts, but hoped companies would be open to state participation before they expire, Boric did not specifically name Albemarle and SQM

According to data from the International Energy Agency (IEA) for 2019, the most recent year available, Australia extracts about 50% of the world’s lithium, Chile more than 25% and China about 14%. However, ranked by processing the material into lithium hydroxide or lithium carbonate, China is the undisputed leader with more than 50% of the world’s refining capacity, followed by Chile with approximately 30%. In terms of market share by company, Albermale produced 24% of the world’s lithium, while SQM was next with 12% and China’s Tianqi Lithium 11%.

Chile’s announcement appears to have arrested a slide in lithium prices, which have fallen more than 70% since November due to weaker EV demand in China but will continue their decline over the next two years according to analysts.

Chile is also the world’s biggest copper producer, making it one of the most important mining countries for the energy transition away from carbon. Chilean politicians have been moving to increase its share of royalties from mining although a crucial vote earlier this month was delayed amid industry warnings that companies might take investment elsewhere.

Boric’s plans for lithium involve the creation of a National Lithium Company to partner with private companies. The president said that state-owned Codelco, the world's largest copper producer, will be tasked to find the best way forward for a state-owned lithium company and he would seek approval from Congress for the plan in the second half of the year.

However, the plans are he likely to spur a shift in future investment in lithium to other countries including Australia as the world's biggest producer, analysts said.

“Policy stability is very important for any mining project,” said Harsh Bardia, an analyst at National Australia Bank’s private wealth arm JBWere. “Mining-friendly jurisdictions like Australia would be places where incremental funds get invested.”

Jordan Roberts, battery raw materials analyst at Fastmarkets, the commodities price reporting agency, said a trend of resource nationalism was sweeping across all commodities. “There may be some hesitation investing in Chile’s lithium space until further details have been released and companies are confident on stability and confidence in how the public-private partnerships will operate,” he commented.


Sale of Italy’s MPS should help create new banks, says PM Meloni

The privatisation of Italian lender Monte dei Paschi di Siena (MPS) should foster the creation of several large banking groups in the country, Italy’s Prime Minister Giorgia Meloni was quoted as telling the daily Milano Finanza newspaper at the weekend.

MPS, whose roots date back to 1472, is currently owned 64% by the government following a 2017 bailout and is seen and playing a pivotal role in the consolidation expected among Italy's mid-sized lenders. After failing to complete a sale of MPS to UniCredit in 2021, the government is expected to seek another bank interested in buying its stake in the Tuscan lender.

“We want to manage the exit of the state from the capital of MPS in an orderly manner to create the conditions for more large banking groups in Italy," Meloni was quoted as saying in the interview. The government recently offered potential bidders some certainty by renewing Luigi Lovaglio's mandate as MPS chief executive for a further term.

“We must not repeat the mistakes of the past. We confirmed Lovaglio at the helm of Monte dei Paschi, the CEO successfully led the last capital increase, and now we must work to bring Monte back to the private market,” Meloni commented.

The government is also working on a sale of ITA Airways – set up in late 2021 as the successor of bankrupt national carrier Alitalia – to Germany's Lufthansa with a deal expected to be announced shortly. “Lufthansa will have to ensure that Italy is at the centre of its interests and present an effective, growth-oriented business plan that serves the routes of trade and tourism,” Meloni said.


Zimbabwe considers a gold-backed digital currency

The Reserve Bank of Zimbabwe (RBZ) plans to introduce a gold-backed digital currency as legal tender to help stabilise the local currency, the Zimbabwe dollar (ZWD), according to a report in the Sunday Mail. RBZ Governor John Mangudya said the plan intends to “leave no one and no place behind.”

According to the report, the tokens would be a form of electronic money backed by the country’s gold reserves, which will be held by the central bank. The RBZ wants people holding Zimbabwe dollars to be able to exchange small amounts of their money for the gold-backed token to help them hedge against the volatility of the local currency. . The country’s annual consumer price inflation touched a one-year low in March at 87.6%, down from 92% in February

A year ago, one US dollar was worth about 150 ZWD and is now worth closer 1,000 ZWD according to The country operates with both currencies. Last August, the RBZ said it planned to create a central bank digital currency (CBDC); following the lead of Nigeria which launched its eNaira in October 2021.

According to Mangudya, the exchange rate in the parallel market is expected to stabilise once tobacco farmers receive their US dollar payments in the coming weeks. He said the current exchange rate volatility has been caused by “expectations of increased foreign currency supply” on the market due to the tobacco season. 

The monetary dysfunction in Zimbabwe and lack of changes have led to businesses printing their “own money,” often on handwritten scraps of paper, so that users can pay for future purchases, according to a Wall Street Journal report from March

Zimbabwe has struggled with currency volatility and rampant inflation for over a decade. In 2009, the country adopted the US dollar as its currency after an episode of hyperinflation. In 2019, the ZWD was reintroduced in a bid to revive the country’s struggling economy. Last year, the government decided to use the USD again in a bid to combat hyperinflation.


India’s Adani Ports starts buyback of debt securities

Indian tycoon Gautam Adani’s logistics unit announced that it will buy back up to US$650 million in bonds as it fights to restore investor confidence.

India’s Adani Ports and Special Economic Zone (APSEZ) , a group company of the beleaguered Adani Group, announced that it had allocated US$130 million to start a buyback programme of certain debt securities to prepay part of its loans due in 2024.

The company is taking this step to reassure investors, as the Adani Group’s shares were hit earlier this year following a negative report by a US short-seller. Hindenburg Research accused the group of fraud, mismanagement and market manipulation. The Adani Group has consistently denied the allegations.

The report further read: “The group will likely begin with a first tranche amounting to anywhere between $250 million and $300 million in the current quarter and look to buy back the rest in the upcoming quarters.”

Over recent weeks, the stocks and bonds of  Adani Group have made a partial recovery after the company repaid some of its debts and secured a US$1.9 billion investment from boutique investment firm GQG Partners.

Adani Group's latest corporate documents revealed that APSEZ and Adani Green Energy, two of the group’s firms, have approximately US$2 billion worth of foreign currency bonds that are due to mature next year.

According to a recent report, the group is currently negotiating with investors to refinance some of its foreign currency bonds through private placement.

APSEZ is the largest commercial ports operator in India accounting for nearly a quarter of the cargo movement in the country. Its presence is across 13 domestic ports in seven maritime states of Gujarat, Maharashtra, Goa, Kerala, Andhra Pradesh, Tamil Nadu and Odisha.


Asian Infrastructure Investment Bank to open Abu Dhabi office

The Asian Infrastructure Investment Bank (AIIB) and the United Arab Emirates (UAE) have signed a host member agreement to officially open in Abu Dhabi the Bank’s first overseas office, an Interim Operational Hub (the Hub).

Jin Liqun, President and Chair of the Board of Directors of AIIB, joined Sultan Al Jaber, Minister of Industry and Advanced Technology and UAE Governor of AIIIB, during the signing ceremony in Abu Dhabi on April 19.

“As a founding member of AIIB, the UAE actively contributes to the Bank’s sound governance and rapid growth,” said President Jin in a press release. “The establishment of the Hub in the UAE gives the Bank a robust platform to manage our growing investment portfolio. It also enhances client and member engagement, project monitoring and implementation services across the globe.

AIIB’s rapid growth is the catalyst for opening an office that helps bring the bank closer to clients and to the frontline of its business, the release stated. The Hub provides proximity to global financial centres and connectivity with the international infrastructure ecosystem which is important in maintaining AIIB’s growth momentum.

The Abu Dhabi Fund for Development was mandated to represent the UAE on the Bank’s Board and to actively participate in its periodic meetings. Since its launch in January 2016, AIIB has approved 212 projects amounting to over US$ 40 billion in 33 member countries, which have contributed to economic development and improved the quality of life for communities in beneficiary countries.


Digital Token Identifier included in the FIX Protocol

The Digital Token Identifier (DTI) ISO standard has been added to the Financial Information eXchange (FIX) Protocol, the industry-standard messaging protocol used in electronic communication between banks, asset managers, exchanges, vendors and regulators.

The Digital Token Identifier Foundation (DTIF) is a non-profit division of Etrading Software (ETS), which says that the DTI ISO standard is increasingly being used by industry as it uniquely identifies digital ledgers, digital tokens and cryptocurrencies using publicly available information. Over 1,300 DTIs have been issued so far, including private ledgers and tokenised assets.

The DTI can be used by regulators to monitor digital asset trades for anti-money laundering (AML) and combating terrorist financing requirements and also for monitoring systemic risks arising from the trading of global stable-coins and other digital assets. The DTI has also been recommended by the European Securities and Markets Authority (ESMA) as a risk management measure under the DLT Pilot regime.

FIX is an industry-standard protocol used by financial institutions to facilitate the electronic trading and trade processing of financial instruments. The protocol allows market participants to communicate seamlessly and efficiently across different trading platforms and systems. Adding the DTI to FIX will allow industry to incorporate the trading and settlement of digital assets into their current trading and settlement operations. This will allow for greater standardisation, efficiency and transparency for market participants trading digital assets.

The inclusion of the DTI was announced in a recent expansion pack issued by the FIX Global Technical Committee, stating that: “The identification of fiat currencies has been standardised for a long time with ISO 4217, whereas the identification of digital assets (including digital currencies) has only recently been standardized with ISO 24165 Digital Token Identifier (DTI). One of the main changes is to enhance the existing FIX datatype “Currency” to support both ISO 4217 and ISO 24165.”


Holland & Barrett adopts Trustly’s open banking-based payment method

Swedish fintech Trustly announced that its open banking-based payment method is available on health and wellness retailer Holland & Barrett’s online store in the UK. The partnership will enable the retailer to process customer payments using Trustly, which allows consumers to pay directly from their bank account in the checkout. 

Holland & Barrett is one of the largest UK retailers to embrace this type of account-to-account payment technology and is Trustly’s first major e-commerce partnership in the UK since its acquisition last May of UK-based open banking platform provider Ecospend, enabling connectivity with over 80 banks and a consumer reach of approximately 50 million consumers.

The technology will enable Holland & Barrett to solve several payment challenges including refunds, reconciliation, and rising costs relating to payments. The retailer was able to integrate Trustly’s payment services into its current infrastructure with ease, thanks to Trustly’s long term relationship with the global financial technology platform Adyen.

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