BRICS Cross-Border Payment System Explained: Features, Benefits and Impact on Global Trade

The BRICS are looking at establishing a cross-border payment mechanism through which international transactions can take place quicker and easier, while having less reliance on traditional financial systems dominated by the West. With the processes of globaliation and financial relations being affected by global trade growth and geopolitical developments. 

BRICS are working on new payment methods to promote local currencies in trade and financial integration of BRICS.

The BRICS countries include Brazil, Russia, India, China and South Africa; in addition, the group members expanded to Egypt, Ethiopia, Iran, Saudi Arabia and UAE. These countries are developing an autonomous cross-border payment project commonly known as BRICS Pay. 

Highlights Developments from Recent BRICS Conferences and Meetings

• Focus on Interoperability Rather than a Unified Currency: BRICS leaders have abandoned the idea of creating a common currency similar to the euro, and instead prefer to connect the national instant money transfer systems of their countries (such as UPI in India, Pix in Brazil, CIPS in China and MIR/SPFS in Russia).
• Integration of Central Bank Digital Currencies: Discussions focused on creating digital links between the Central Bank digital currencies of the member countries: the Digital Rupee in India, e-CNY in China, etc.
• Payment in National Currencies: The finance ministries focused on how to facilitate payments in national currencies in the bilateral track.
• Support for the MSME Sector: BRICS ministers endorsed frameworks aimed at reducing transactions, delays in processing and trade financing gaps for small-and medium-sized enterprises in trade between BRICS countries.
• Block Expanding and New Members: The most recent summits secured the integration of new full members (like Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates) and confirmed the status of Partner Countries, significantly broadening the scope of “non-dollar” processes in trade and energy settlements.

What is the BRICS Cross Border Payment System? 

The BRICS Cross Border Payment System is a dispensed messaging and settlement method designed to connect the national payment systems and central banks of the members. 

Using BRICS Pay, instead of conducting international money transfers through foreign partners or converting funds into US dollars or euros, countries can directly pay for international trade using their own currencies (such as an Indian rupee, Chinese yuan, Russian ruble, etc.) or secured digital assets.

Features of the BRICS Payment Framework

Need for an Alternative Global Payment Mechanism

The necessity of creating a non-Western payment network is brought about by several structural and geopolitical factors:

• Geopolitical sanctions and weaponization of finance: The disconnection of several Russian banks from SWIFT in 2022 demonstrated the risks of depending on a centralized, Western-oriented payment system for international payment.

• Hefty transaction fees: Traditional means of money transfer which entails multiple correspondent banks in cross-border settlements incurs huge transaction and currency conversion costs.

• Settlement delays: Regular SWIFT transfers take 1 to 5 days on average to transfer money internationally.

• De-dollarization tendencies: Developing markets are looking for ways of protecting themselves from fluctuations of the US dollar exchange rate and changes in the monetary policy of the US Federal Reserve.

Impact on Global Financial Order and the US Dollar

The BRICS payment initiative represents a significant change towards a multipolar financial environment but financial specialists indicate that it aims to serve as a complementary option rather than a substitute for SWIFT or the US dollar which still makes up the bulk of currencies held worldwide and international debt issuances.