Why in the News?

• BRICS nations are advancing plans to operationalise BRICS Pay, a cross-border payment system aimed at reducing dependence on the U.S.-controlled SWIFT network and promoting financial sovereignty among member countries.

What’s in Today’s Article?

• BRICS Financial Corporation (Background, Evolution)
• BRICS Pay Initiative (Key Features, Need & Political Context, Challenges, Global Implications)

Introduction

• The BRICS grouping, comprising Brazil, Russia, India, China, and South Africa, has embarked on an ambitious mission to challenge the global financial dominance of the U.S.-led SWIFT system.
• The recent unveiling of the BRICS Cross-Border Payments Initiative, or “BRICS Pay,” marks a decisive step in their long-standing quest to establish a more inclusive, multipolar financial order.
• This effort aims to promote local currency settlements, protect member nations from Western sanctions, and strengthen the group’s financial sovereignty.
• The motivation behind this move has intensified since Russia faced sweeping Western sanctions in 2014 and 2022, leading the bloc to pursue alternative transaction mechanisms insulated from U.S. influence.

Evolution of BRICS Financial Cooperation

• The journey towards financial independence for BRICS began at the Fortaleza Summit (2014), where member nations established the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), the first financial institutions created by developing nations to rival Western-dominated entities like the IMF and World Bank.
• In 2015, after the U.S. and EU imposed sanctions on Russia following the annexation of Crimea, BRICS members intensified discussions on using local currencies for trade and investment.
• By 2017, the grouping had agreed to strengthen currency cooperation through swap arrangements and local currency settlements.
• This groundwork culminated in the Kazan Summit (2024), where the leaders launched the BRICS Cross-Border Payments Initiative, BRICS Pay, and underscored the importance of “strengthening correspondent banking networks within BRICS and enabling settlements in local currencies.”

The BRICS Pay Initiative

• BRICS Pay represents the grouping’s most concrete step to reduce reliance on the SWIFT network, a Belgium-based system used by over 11,000 banks for global money transfers.
• SWIFT’s control by G-10 central banks, especially under U.S. influence, has long been criticised for allowing the weaponisation of the global financial system through sanctions.
• The prototype of BRICS Pay was demonstrated in Moscow in October 2024, marking a milestone in the bloc’s efforts to build an independent payment ecosystem.
• The project is being developed by the BRICS Payment Task Force (BPTF), which aims to ensure interoperability between national payment systems.
• Each BRICS nation already possesses a robust digital payment infrastructure:

• India - Unified Payments Interface (UPI)
• China - Cross-Border Interbank Payment System (CIPS)
• Russia - System for Transfer of Financial Messages (SPFS)
• Brazil - Pix Instant Payment System
• South Africa - South African Multiple Option Settlement (SAMOS)

• Together, these systems form the technological backbone of BRICS Pay, offering a credible alternative to SWIFT within the bloc and potentially to other developing economies.

Strategic Motivation and Political Context

• The desire to establish BRICS Pay stems from three key motivations:

• Financial Sovereignty: Reducing dependency on the U.S. dollar and mitigating exposure to Western sanctions.
• Economic Efficiency: Lowering transaction costs and settlement times for trade among member nations.
• Geopolitical Assertion: Establishing the BRICS bloc as a counterweight to Western economic dominance.

• The inclusion of Iran, a nation long targeted by Western sanctions, in BRICS in 2024 further emphasised the grouping’s goal of building a sanctions-proof global payments system.
• However, this initiative has drawn strong reactions.
• Former U.S. President Donald Trump threatened 100% tariffs on BRICS members if they attempted to “create a new currency or back any other currency to replace the mighty U.S. dollar,” underscoring the geopolitical sensitivity of the move.

Challenges in Implementing BRICS Pay

• Despite its promise, BRICS Pay faces multiple hurdles:

• Divergent National Interests: Each member is promoting its own payment system globally. For instance, India’s UPI is expanding into Asia and Africa, while China’s CIPS operates in over 120 countries. Aligning these platforms under one interoperable framework remains a major challenge.
• Technical Interoperability: Integrating five distinct digital payment ecosystems requires harmonised regulatory and security standards.
• Currency Coordination: The absence of a unified BRICS currency limits the system’s potential to function seamlessly.
• Trust Deficit: Smaller BRICS members may fear Chinese dominance, given the internationalisation of the yuan and its inclusion in the IMF’s Special Drawing Rights (SDR) basket.

• Moreover, the creation of a common BRICS currency remains distant.

Global Implications

• If successful, BRICS Pay could fundamentally alter the global financial landscape. It would provide developing nations with an alternative to SWIFT, fostering multipolarity in global finance and reducing the dollar’s overwhelming dominance.
• Experts suggest that even a regionalised adoption, covering intra-BRICS trade and transactions, would signal a significant geopolitical shift.
• The growing popularity of local currency settlements, especially in energy trade between India, Russia, and China, aligns with this vision.
• However, the initiative’s success depends on sustained political will, technical integration, and trust among the members, factors that will determine whether BRICS Pay becomes a global disruptor or remains a regional experiment.