Syllabus: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
Background
- Over decade: BRICS taking steps to reduce dependence on dollar-dominated international financial system seeking financial sovereignty.
- Fortaleza Summit (2014) marked beginning
- Established New Development Bank and Contingent Reserve Arrangement as first developing country financial institutions.
- 2015: After Western sanctions on Russia (Crimea), BRICS explored expanding national currencies use in inter se transactions.
- 2017: Grouping agreed to enhance currency cooperation through currency swap, local currency settlement, direct investment comprehensively.
BRICS Pay Development
- BRICS Payments Task Force set up to develop systems facilitating transactions between member countries ensuring financial connectivity.
- Kazan Summit (2024): leaders underscored strengthening correspondent banking networks, enabling settlements in local currencies through BRICS Cross-Border Payments Initiative.
- BRICS Pay: most concrete step to reduce dependence on SWIFT network (used by 11,000+ banks worldwide, controlled by G-10 central banks).
Motivation
- Driven by desire for greater financial sovereignty and reduced exposure to US sanctions ensuring independent financial systems.
- Iran inclusion (2024): country facing sanctions lent further relevance to objective of financial independence from West.
- Kazan summit: unveiled BRICS banknote (symbolic) igniting discussions about moving away from dollar dominance globally.
- Trump threatened 100% tariffs on BRICS members if they create new currency or back any currency replacing US Dollar.
Infrastructure Readiness
- Russia’s SPFS (System for Transfer of Financial Messages), China’s CIPS (Cross-Border Interbank Payment System) well-developed.
- India’s UPI (Unified Payments Interface) and Brazil’s Pix system well-equipped to support proposed network comprehensively.
- Interoperability essential for creating cohesive BRICS-led payment infrastructure rivaling SWIFT within limited geographic/political bloc.
Progress and Challenges
- Prototype demonstration of BRICS Pay unveiled in Moscow (October 2024) marking important landmark in project progress.
- Russia most enthusiastic; remaining original BRICS nations more circumspect due to interests in promoting own platforms globally.
- India’s UPI: accepted in nine countries but yet to find acceptance within BRICS limiting intra-group integration.
- China’s CIPS: participants in 120+ countries including all BRICS members except India showing significant global reach.
- Brazil’s Pix: introduced 2020, operated by central bank, used across several Latin American countries regionally.
Way Forward
- Navigating individual countries’ ambitions to promote own payment systems could dent early progress toward BRICS Pay realization.
- Trump’s aggressive intent could force BRICS into political understanding toward launching payment system sooner than expected.