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BRICS Pay and the Push to De-dollarize Global Finance

IOCR | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

Why in the News?

Since 2014, BRICS nations have worked to cut dependence on the U.S. dollar, launching the New Development Bank (NDB), Contingent Reserve Arrangement (CRA), and now BRICS Pay to promote local currency trade and rival the SWIFT system.

BRICS Pay and the Push to De-dollarize Global Finance

About BRICS Pay Initiative:

  • Overview: BRICS Pay is a proposed cross-border digital payment and settlement platform developed by the BRICS nations (Brazil, Russia, India, China, South Africa) to facilitate trade in local currencies and reduce reliance on the U.S. dollar and the SWIFT network.
  • Origins: The idea emerged after the 2014 Fortaleza Summit, where BRICS established its own financial architecture, the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA).
  • Purpose: To enable direct financial transactions among member nations using local currencies, minimizing the role of Western-controlled financial systems and avoiding U.S.-led sanctions.
  • Development Path:
    • 2017: BRICS agreed to enhance currency cooperation via swaps, local currency settlements, and direct investments.
    • Early 2020s: The BRICS Payments Task Force (BPTF) was created to design interoperable systems.
    • 2024 Kazan Summit: Leaders highlighted strengthening of correspondent banking networks and settlements in local currencies under the BRICS Cross-Border Payments Initiative.
  • Prototype: A demo of BRICS Pay was unveiled in Moscow (October 2024), marking a concrete step toward implementation.
  • Supporting National Systems:
    • 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
  • Strategic Importance: The initiative seeks to establish a self-reliant financial network, bypass SWIFT, and enhance monetary sovereignty among emerging economies.

Back2Basics: Society for Worldwide Interbank Financial Telecommunication (SWIFT) System

  • Establishment: Founded in 1973 by 239 banks from 15 countries to standardize and secure cross-border financial communications.
  • Headquarters: La Hulpe, Belgium.
  • Nature: A messaging network, not a bank, it does not hold or transfer funds but enables secure interbank communication for financial transactions.
  • Coverage: Connects over 11,000 financial institutions across 200+ countries, making it the largest international payment messaging system.
  • Operation:
    • Assigns each member a Bank Identifier Code (BIC) of 8–11 characters.
    • Standardizes message formats to ensure seamless global financial communication.
    • Facilitates fund transfer instructions, trade settlements, and foreign exchange operations.
  • Governance:
    • Supervised by G10 central banks, the European Central Bank (ECB), and the National Bank of Belgium.
    • Managed by a 25-member board of directors, representing about 3,500 member institutions.
  • Strategic Role:
    • Forms the backbone of global finance, allowing efficient movement of capital.
    • Exclusion from SWIFT acts as a powerful economic sanction tool, isolating nations (e.g., Russia and Iran) from the international financial system.
  • Significance: SWIFT’s dominance reflects Western control over global finance, making it a central target for alternative networks like BRICS Pay, China’s CIPS, and Russia’s SPFS that seek a multipolar monetary order.

 

[UPSC 2023] With reference to the Central Bank digital currencies, consider the following statements:

1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.

2. A digital currency can be distributed with a condition programmed into it such as time-frame for spending it.

Which of the statements given above is/are correct?

Options: (a) 1 only (b) 2 only (c) Both 1 and 2* (d) Neither 1 nor 2

 

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