Why is BRICS exploring cross-border payments?, Pg14

Key Highlights:

• The 18th BRICS Summit, hosted by India in New Delhi on September 12-13, 2026, is set to prioritize mechanisms for cross-border payments, including links between digital payment systems and Central Bank Digital Currencies (CBDCs).
• BRICS nations aim to reduce reliance on the current system, which involves multiple intermediary banks and the U.S. dollar as a vehicle currency, leading to high transaction costs and exposure to external monetary policies.
• Current cross-border payments typically use the SWIFT messaging network and involve correspondent banks, often resulting in foreign exchange margins ranging from 2.5% to 20%.
• Proposed solutions include direct connections between national payment systems, shared hubs like Project Nexus, and platforms for interbank CBDC exchanges such as mBridge.
• India's proposal focuses on linking CBDCs for trade and tourism payments, framing the initiatives as cost-reduction measures rather than efforts to displace the dollar.

BRICS Payment Push.jpg

Detailed Insights:

• The existing cross-border payment system routes transactions through a chain of correspondent banks, often converting national currencies to the U.S. dollar and then to the recipient's currency.
• SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a Belgium-based cooperative messaging network used by over 11,000 institutions globally to exchange payment instructions.
• A 2019 BRICS survey revealed significant foreign exchange margins, with some payments in Africa incurring costs as high as 20%.
• The Bank for International Settlements (BIS) reported a 20% decline in active correspondent banking relationships between 2011 and 2018, largely due to commercial reasons.
• BRICS countries, particularly Russia after being cut off from SWIFT in 2022, seek alternatives to mitigate risks from sanctions and reduce the monopolization of the financial system.
• Bilateral links, such as India's Unified Payments Interface (UPI) with Singapore's PayNow, demonstrate a model for direct national payment system connections.
• Project Nexus, a BIS Innovation Hub initiative, aims to connect multiple domestic instant payment systems globally through a single hub, with live implementation expected in 2027.
• mBridge, developed by the BIS with central banks from China, Thailand, Hong Kong, and the UAE, is an operational platform for interbank CBDC exchanges, with over 95% of its settlement volume in China's digital yuan.
• The Kazan Declaration of 2024 agreed to study the feasibility of an independent settlement system called BRICS Clear, though it was not mentioned in the subsequent Rio Declaration of 2025.
• Former U.S. President Donald Trump's threats of tariffs on BRICS countries if they moved away from the dollar may influence India's cautious stance on de-dollarization.

Key Concepts Involved:

• Cross-border payments: Financial transactions between individuals or entities located in different countries.
• SWIFT (Society for Worldwide Interbank Financial Telecommunication): A global messaging network facilitating secure communication between financial institutions for international payments.
• Central Bank Digital Currency (CBDC): A digital form of a country's fiat currency, issued and regulated by its central bank.
• Correspondent banking: A system where one bank provides services to another bank in a different country, enabling international transactions.
• De-dollarization: The process of reducing the reliance on the U.S. dollar as the primary currency for international trade and financial transactions.