BRICS Payment System Moves Forward

The long-rumored BRICS payment system may finally be coming to fruition. A rail based on interoperable central bank digital currencies (CBDCs) has been included in the agenda for the group’s summit taking place in India this summer, more than a decade after the concept was first proposed.

Interest has shifted from a

suggested BRICS currency

, called the Unit, which was discussed last year. Issues like logistical challenges and concerns that China’s yuan might dominate any shared currency have put that concept on hold for now in favor of creating alternative payment rails to compete with the Swift network.

The proposed approach would resurrect the BRICS Cross-Border Payments Initiative (BCBPI), initially suggested in 2015. Rather than establishing a new currency, the system aims to link existing national CBDCs like India’s digital rupee, China’s digital yuan, and Russia’s digital ruble.

Seeking Technical Solutions

As a founding member of BRICS and host for the upcoming summit, India is crucial in determining the initiative’s path. Known for its successful Unified Payments Interface (UPI) system, India has long advocated for interoperable payment rails instead of currency integration.

The current proposal depends on

two technical mechanisms

to ease cross-border settlements: settlement cycles and foreign-exchange swap lines. Settlement cycles would allow for the netting of trade flows over time, rather than settling each transaction immediately by transferring only the final balance. Forex swap lines would permit central banks to temporarily exchange currencies if a country needs additional liquidity in a particular currency to settle its obligations.

A Mix of Economies

The BRICS group now includes members such as Brazil, Russia, India, China, South Africa, Egypt, the United Arab Emirates, Indonesia and others. Collectively, these countries account for about 45% of the world’s population and around 35% of global GDP.

One significant challenge with this system is the varied economic conditions among its members.

“There isn’t really much trade between these countries,” stated

Hugh Thomas

, Lead Analyst, Commercial & Enterprise at Javelin Strategy & Research. “I expect that they will continue to develop spot solutions where there’s common interest and a willing audience, but the necessity for transparent systems in countries with independent regulators and a clear rule of law will keep most major financial flows on Swift.”