BRICS is exploring payment arrangements that can make trade and other cross-border transactions cheaper and quicker. The central concern is not simply the use of one currency. It is the cost and dependence created by the present payment chain.
How the present cross-border payment chain creates dependence
The article explains that money usually does not move directly from one trading partner’s bank to the other. It travels through correspondent banks, which makes small transactions costly and gives a few financial centres a central role.
- Correspondent banking: When two banks do not hold accounts with each other, they use a larger bank that has relationships with both sides.
- Vehicle currency: A South African importer paying an Indian exporter may see rand converted into dollars and then into rupees.
- Multiple charges: Each intermediary can levy a fee. Foreign-exchange margins add another cost to the payment.
- System concentration: SWIFT provides secure payment messaging, but it is a Belgium-based network used by more than 11,000 institutions and is difficult to replace quickly.
What BRICS can change and what it cannot
The proposals seek to reduce avoidable intermediaries. They do not automatically remove the need for trusted settlement, compatible rules and sufficient liquidity in each currency.
- Linked payment systems: BRICS members can connect domestic instant-payment systems through bilateral links or a shared arrangement.
- Nexus platform: The BIS-designed Nexus model aims to connect national systems through a shared hub. It is expected to go live in 2027 under an RBI initiative.
- CBDC settlement: Central bank digital currencies could allow banks to settle directly in digital national currencies instead of routing every transaction through a vehicle currency.
- Adoption barrier: An alternative system works only when enough banks, regulators and users join it. This is harder where existing networks already provide wide reach.
Why India has kept its proposal limited
India has proposed CBDC links for trade and tourism payments. The article presents this as a practical cost-reduction measure, not as an immediate project to displace the dollar from global trade.
- Trade use: Direct settlement can reduce repeated currency conversion for transactions between BRICS members.
- Tourism use: Linked payment systems can make small cross-border payments easier for travellers and businesses.
- Strategic caution: India avoids treating payment cooperation as an anti-dollar bloc. Its stated focus is lower transaction costs.
- Wider lesson: Financial autonomy needs payment infrastructure, trusted institutions and economic links. Currency rhetoric alone cannot create an alternative system.
Mains Angle
GS 2 and GS 3: International Relations; Indian Economy. Practice question: Assess the potential and limits of BRICS payment cooperation in reducing cross-border transaction costs.
Source: The Hindu