Why is BRICS exploring cross-border payments? |Explained

The current international payment architecture heavily relies on correspondent banking and the SWIFT messaging network, which uses the U.S. dollar as a vehicle currency. This system is inefficient for developing nations because it necessitates double currency conversion (e.g., Rand to Dollar, then Dollar to Rupee), resulting in high foreign exchange margins and transaction fees (ranging from 2.5% to over 20% in some regions). BRICS is exploring alternatives like linking national fast-payment systems (similar to the UPI-PayNow linkage between India and Singapore) and utilizing wholesale Central Bank Digital Currencies (CBDCs) on shared platforms. Platforms like mBridge (developed by the Bank for International Settlements) allow instantaneous, peer-to-peer settlement using digital national currencies, eliminating the need for correspondent banks, reducing capital lock-up, and significantly lowering transaction costs. The Reserve Bank of India is actively involved in similar initiatives like Project Nexus.

The push for an alternative payment system reflects deeper geopolitical realignment and concerns over the weaponization of finance. The SWIFT system, while headquartered in Belgium, is heavily influenced by the G-10 central banks, particularly the U.S. Federal Reserve. The exclusion of Russian banks from SWIFT following the Ukraine invasion highlighted the vulnerability of nations reliant on the dollar-dominated system to unilateral Western economic sanctions. For Russia and, to a lesser extent, China, developing a BRICS-based financial architecture is a strategic imperative to achieve financial sovereignty and bypass U.S. monetary hegemony. This aligns with broader discussions on de-dollarization in international trade.

India's approach to the BRICS cross-border payment initiative requires delicate strategic balancing. While India benefits economically from reduced transaction costs and faster settlements for its growing international trade, it is cautious about being perceived as part of an explicitly "anti-Western" or anti-dollar bloc, especially given potential backlash (such as tariff threats). India officially frames its proposals—like linking CBDCs for trade and tourism—as technical improvements for economic efficiency rather than geopolitical tools. This reflects India's broader foreign policy of multi-alignment, where it participates in non-Western groupings like BRICS and the Shanghai Cooperation Organisation (SCO) while simultaneously deepening strategic and economic ties with the West through frameworks like the Quad. India seeks to reform global financial governance without completely rupturing existing structures.