BRICS announces creation of an independent payment system based on cryptocurrency and blockchain

"What are the anticipated implications of the proposed BRICS blockchain-based payment system on Nigeria's finance & payments infrastructure, particularly concerning currency dynamics, competitive positioning of local businesses, financial regulatory considerations, and the strategic role of risk management in adapting to this potential paradigm shift?" (markets.businessinsider.com, March 4th, 2024)

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1. Currency Diversification: The BRICS payment system's success could encourage the Nigerian government and businesses to diversify their currency reserves away from the US dollar. This could lead to increased use of digital assets and cryptocurrencies in the Nigerian economy, providing an alternative to traditional fiat currencies.

2. Trade Facilitation: As the BRICS payment system becomes a viable option for cross-border transactions, it may facilitate smoother trade between Nigeria and other BRICS member nations. Reduced reliance on the US dollar could simplify and expedite trade settlements, potentially boosting international trade activities involving Nigeria.

3. Impact on Exchange Rates: The new payment system could influence exchange rates, particularly the value of the US dollar against other currencies. If the demand for the US dollar decreases globally due to the adoption of alternative payment mechanisms, including digital assets, it might lead to fluctuations in exchange rates, affecting Nigeria's foreign exchange market.

Effects on Local and International Payment/Finance Companies in Nigeria:

1. Increased Competition: Local payment companies in Nigeria may face increased competition from international players leveraging the BRICS payment system. As businesses and individuals explore alternative payment options, companies with a heavy reliance on traditional financial services may need to adapt to changing preferences.

2. Technology Integration: Payment companies operating in Nigeria may need to integrate state-of-the-art blockchain technology and digital assets into their systems to align with the evolving landscape. Adapting to these technological advancements will be crucial for companies to stay relevant and competitive in the market.

3. Regulatory Considerations: The emergence of a new global payment system could prompt regulatory changes in Nigeria. Local and international payment companies will need to navigate evolving regulations, ensuring compliance with the new standards set by both national and international financial authorities.

Other ways this Might Affect the Finance/Payment Sector:

1. Positive Impact on Cryptocurrency Enthusiasts: The adoption of digital assets within the BRICS payment system could positively affect cryptocurrency enthusiasts in Nigeria. It might lead to increased acceptance and use of cryptocurrencies in everyday transactions.

2. Negative Impact on Dollar-Dependent Businesses: ?Businesses in Nigeria heavily dependent on US dollars for international transactions may face challenges if the demand for the dollar diminishes. This could affect importers, exporters, and businesses with significant exposure to USD-dominated contracts.

3. Potential Positive Impact on SMEs: Small and Medium Enterprises (SMEs) in Nigeria may find the BRICS payment system advantageous, offering them a more diverse range of payment options and potentially reducing transaction costs associated with cross-border trade.

Opportunities for Actors in the Finance/Payment space:

1. Investment Opportunities in Blockchain Technology: The success of the BRICS payment system creates opportunities for investments in blockchain technology and related infrastructure. Nigerian businesses and investors can explore partnerships or direct investments in projects that support blockchain development.

2. Strategic Partnerships: Core parties, including the Nigerian government and businesses, can explore strategic partnerships with BRICS member nations to leverage the new payment system. Collaborative efforts can enhance economic ties and facilitate mutually beneficial trade relationships.

3. Financial Inclusion Opportunities: The adoption of digital assets in the payment system presents opportunities for enhancing financial inclusion in Nigeria. Core parties can explore initiatives to bring unbanked or underbanked populations into the formal financial sector through innovative payment solutions.

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Roles of Risk Management Experts:

1. Regulatory Compliance: Risk management experts will play a crucial role in ensuring that businesses and financial institutions in Nigeria comply with any new regulations introduced in response to the BRICS payment system. This includes adapting to changes in anti-money laundering (AML) and know your customer (KYC) standards.

2. Currency Risk Mitigation: As exchange rates and currency dynamics are likely to be affected, risk management experts will need to develop strategies to mitigate currency risks for businesses engaged in international trade. This includes hedging against potential fluctuations in the value of the Naira against other currencies.

3. Technology and Cybersecurity Risk Management: With the integration of blockchain and digital assets, there will be an increased need for robust cybersecurity measures. Risk management experts will be tasked with developing and implementing strategies to mitigate technology and cybersecurity risks associated with the adoption of new payment technology