BRICS countries are making significant strides in developing and linking their payment systems to facilitate more efficient and lower-cost cross-border transactions, with a particular focus on reducing dependence on the US dollar and established Western-dominated networks like SWIFT. India, as the current chair of BRICS, is a key proponent of these initiatives. Prime Minister Narendra Modi advocates for using central bank digital currencies (CBDCs) to settle bilateral trade among member nations. While a unified, bloc-wide payment system is unlikely in the immediate future, India proposes linking individual countries' CBDCs for cross-border transactions, aiming to cut costs and streamline processes by bypassing traditional banking intermediaries.
These efforts gained momentum after several Russian banks were disconnected from SWIFT following the 2022 invasion of Ukraine. However, India is cautious about creating a unified BRICS payment system that could be perceived as overtly anti-dollar or anti-Western. Instead, the focus is on bilateral agreements and the interoperability of existing payment systems. For example, India has already connected its Unified Payments Interface (UPI) with Singapore’s PayNow for remittances and is seeking similar agreements with countries that have large Indian diaspora populations.
Promoting trade settlements in local currencies is another critical aspect of this strategy. This approach helps conserve scarce dollar reserves for strategic imports and provides a buffer against volatile global capital flows. India's trade with Russia now sees approximately 96% of settlements occurring via rupee-ruble mechanisms. Similarly, almost all trade between Russia and China is settled in yuan and rubles. The BRICS Finance Ministers and Central Bank Governors acknowledge the work of the BRICS Payment Task Force (BPTF) in exploring pragmatic solutions for efficient cross-border payment mechanisms, emphasizing that there is no "one-size-fits-all" approach.
The rationale behind these initiatives includes significant cost savings. A 2019 BRICS survey found foreign exchange margins on cross-border payments could be as high as 20% in some cases. By connecting national payment systems directly or exchanging CBDCs on a common platform, intermediary fees and double currency conversions can be avoided, leading to substantial reductions in transaction costs and faster settlements. While a common BRICS currency remains improbable, CBDCs offer a more practical alternative for achieving these goals.
