Why in news?

Ahead of the 18th BRICS Summit in New Delhi (September 2026), with India as Chair, member nations are pushing for new mechanisms to make cross-border payments faster and cheaper — including linking digital payment systems and central bank digital currencies (CBDCs).

Finance ministries and central bank representatives from BRICS countries met in Jaipur recently to discuss this financial cooperation.

What’s in Today’s Article?

• How Do Cross-Border Payments Currently Work?
• The Role of SWIFT
• Why Are These Payments So Costly and Slow?
• Why Does BRICS Want to Change This System?
• What Alternatives Are Being Explored?
• What Is India's Position?

How Do Cross-Border Payments Currently Work?

• Sending money internationally isn't a direct transfer — it travels through a chain of intermediaries called correspondent banks.
• For example, if a South African importer pays an Indian exporter, the payment doesn't move directly between the two countries' banks.
• Instead, it's routed through a larger international bank (usually based in London or New York) that holds accounts with both.
• Since very few banks hold both rupees and rand directly, the payment gets converted rand → dollar → rupee, with the US dollar acting as a "vehicle currency" — even though no American party is involved in the trade at all.

The Role of SWIFT

• Alongside the actual money, payment instructions also need to travel between banks — this is handled by SWIFT (Society for Worldwide Interbank Financial Telecommunication).
• SWIFT is a Belgium-based cooperative overseen by the National Bank of Belgium and G-10 central banks (including the US Federal Reserve).
• SWIFT works like a secure messaging network — a "post office" for payment instructions — used directly by over 11,000 institutions in more than 200 countries.
• Smaller banks connect to it indirectly through larger ones, making SWIFT deeply embedded and hard to replace.

Why Are These Payments So Costly and Slow?

• Every intermediary bank in the chain charges a fee, and currency is converted twice, meaning forex margins are paid twice over.
• A 2019 BRICS survey by Brazil found:
  • Forex margins of 2.5% for Brazilian respondents generally
  • Rising to 8.5% for payments involving Africa
  • Sometimes as high as 20% in certain cases
• While SWIFT's "Global Payments Innovation" has helped speed up transactions, structural delays persist.
• The Bank for International Settlements (BIS) found that active correspondent banking relationships fell by 20% between 2011 and 2018 — with Latin America worst affected (declines up to 30%) — even as overall payment volumes kept growing through this shrinking network.

Why Does BRICS Want to Change This System?

• For developing economies, heavy reliance on a few dominant currencies — the US dollar, euro, and yen — creates exposure to the monetary policies of the countries issuing them.
• The 2024 BRICS report (under Russia's chairmanship) argued that this system is effectively monopolised, driving up transaction costs.
• Building alternatives is hard, though — they require convincing a large number of banks and regulators to join.
• There's also a sanctions risk: several Russian banks were cut off from SWIFT in 2022 after Russia's invasion of Ukraine, making other countries cautious about joining any alternative system that a sanctioned nation might use.
• This is exactly why Russia has pushed hardest for alternatives, while others remain wary.

What Alternatives Are Being Explored?

• Direct linking of national payment systems — instead of routing through multiple correspondent banks, countries could connect their payment systems directly, in pairs.
  • India has already done this with Singapore, linking UPI with Singapore's PayNow for remittances. However, building such bilateral links one at a time doesn't scale well.
• A shared hub model — Project Nexus, designed by the BIS and now run by a company set up by six central banks (including India's RBI), aims to connect multiple countries' payment systems through one common hub.
  • It's expected to go live only in 2027, and importantly, it is not a BRICS initiative.
• Central Bank Digital Currencies (CBDCs) — BRICS discussions extend this idea further, exploring the use of CBDCs (digital versions of currencies used for bank-to-bank settlement, not retail digital currency for individuals) exchanged on a common platform.
  • Both sides of a currency swap would settle simultaneously, eliminating the risk of one party paying before the other, speeding up settlement and reducing capital banks need to set aside.
  • The only such platform running today is mBridge, built by BIS with the central banks of China, Thailand, Hong Kong, and the UAE.
  • BIS handed it over to participants in October 2024. Notably, over 95% of mBridge's settlement volume is in China's digital yuan.
• The 2024 Kazan Declaration agreed to "discuss and study the feasibility" of an independent BRICS settlement system called BRICS Clear — but this proposal was notably absent from the following year's Rio Declaration.

What Is India's Position?

• India's own proposal, reported in January, suggests member nations link their CBDCs specifically for trade and tourism payments.
• Indian officials have been careful to frame this purely as a way to cut transaction costs and speed up settlements — not as an attempt to displace the US dollar, unlike some Russian and Brazilian proposals that go further toward reducing dollar dependence.
• This cautious framing may not be accidental. In November 2024, then US President Donald Trump threatened 100% tariffs on BRICS countries if they moved away from the dollar, plus a further 10% tariff on countries aligning with vaguely defined "anti-American" BRICS policies.
• Though these threats weren't carried out, they may explain why India has stuck to a narrower, cost-focused framing of the payment discussions.

Conclusion

BRICS's push for alternative cross-border payment mechanisms reflects developing economies' shared concern over high costs and dollar dependence in global finance, though the group remains divided on how far to go — with Russia favouring dollar alternatives and India framing its proposals purely around efficiency.

As India hosts the 2026 summit, its cautious, cost-centric approach to CBDC linkages will likely shape how far BRICS's payment ambitions actually progress.