How BRICS is challenging SWIFT

 Why in News ?

• At the Kazan Summit 2024, BRICS leaders unveiled a prototype of BRICS Pay, a cross-border payment system aimed at reducing dependence on the US dollar and SWIFT network.
• This represents a concrete step in the long-term BRICS strategy (since 2014) to build alternative global financial architecture led by developing nations.

Relevance :

GS Paper II (International Relations):

• Rise of multipolar financial order and reform of global governance institutions.
• South-South cooperation and de-dollarisation debates.
• India’s role in shaping alternative global financial frameworks (BRICS, NDB, CRA).

GS Paper III (Economy):

• Impact on global trade, finance, and monetary policy.
• Digital payment systems and financial sovereignty.
• Currency internationalisation and fintech diplomacy.

Background – BRICS’ Financial Autonomy Journey

• 2014 Fortaleza Summit:
  • Turning point where BRICS established its own financial institutions:
    • New Development Bank (NDB): Development financing for emerging economies.
    • Contingent Reserve Arrangement (CRA): Financial safety net for liquidity crises.
  • First time developing countries created such institutions independent of the IMF–World Bank system.
• Post-2014 (Crimea Crisis):
  • Western sanctions on Russia catalysed BRICS’ efforts to expand local currency usage in trade and finance.
• 2017 Xiamen Summit:
  • Agreement to enhance currency cooperation — currency swaps, local currency settlements, and direct investments.
• Early 2020s:
  • Formation of BRICS Payments Task Force (BPTF) to explore interoperable payment systems and digital infrastructure.

The 2024 Kazan Summit – Key Milestones

• Launch of BRICS Pay Prototype: Demonstrated in Moscow (Oct 2024).
• Strategic Focus:
  • Develop a BRICS-led cross-border payments network independent of the SWIFT system (controlled by G-10 central banks).
  • Strengthen correspondent banking networks within BRICS.
  • Enable settlements in local currencies.
• Symbolic Act:
  • BRICS Banknote unveiled, igniting debate on a potential BRICS common currency.
• Geopolitical Trigger:
  • Inclusion of Iran (2024) – long targeted by US sanctions – added urgency.
  • Threat from Donald Trump (President-elect) to impose 100% tariffs if BRICS moved to replace the dollar.

Why BRICS Wants to De-dollarise ?

• Reduce vulnerability to US-dominated sanctions and monetary policy.
• Increase autonomy of developing economies in global finance.
• Challenge unequal financial architecture dominated by Bretton Woods institutions.
• Enhance South-South financial cooperation.
• Support intra-BRICS trade through local currencies, lowering transaction costs and volatility risks.

Existing National Payment Systems (Building Blocks for BRICS Pay)

Country	System	Features / Strengths
Russia	SPFS (System for Transfer of Financial Messages)	Domestic alternative to SWIFT, post-2014 sanctions.
China	CIPS (Cross-Border Interbank Payment System)	Supports RMB settlements; participants from 120+ countries.
India	UPI (Unified Payments Interface)	Fast, interoperable digital payment infrastructure; accepted in 9 countries.
Brazil	Pix	Operated by central bank; regional expansion in Latin America.

 

• Challenge: Interoperability and harmonisation among these diverse systems.
• Opportunity: Integrate these networks to create a BRICS Financial Grid.

Challenges & Divergences

• Differing ambitions:
  • China seeks RMB internationalisation via CIPS.
  • India aims to globalise UPI.
  • Brazil promotes Pix regionally.
• Lack of common regulatory & cybersecurity standards.
• Political coordination needed among diverse governance models.
• Resistance from global markets tied to dollar liquidity and SWIFT security protocols.

Strategic Implications

• For Global Finance:
  • Marks the rise of a multipolar monetary order.
  • Could weaken dollar’s hegemony over time.
  • Encourages digital currency integration among emerging economies.
• For Developing Countries:
  • Offers an alternative payment route immune to Western sanctions.
  • May facilitate South-South trade settlements in local currencies.
• For the West:
  • Seen as a challenge to the financial dominance of the US and EU.
  • Could trigger financial fragmentation and geopolitical countermeasures.

Way Forward

• Technical: Develop secure, scalable interoperability architecture among SPFS, CIPS, UPI, and Pix.
• Institutional: Empower the BRICS Payment Task Force to draft unified regulatory and cybersecurity protocols.
• Strategic: Gradually expand to include other Global South economies (ASEAN, Africa, Latin America).
• Political: Balance China’s dominance to ensure equitable governance.

BRICS — Quick Summary

• Origin: Coined by Jim O’Neill (2001); formal group in 2009 (BRIC); South Africa joined 2010 → BRICS.
• Members (2025): Brazil, Russia, India, China, South Africa + Egypt, Ethiopia, Iran, Saudi Arabia, UAE (BRICS+).
• Objective: Reform global governance, promote multipolarity, enhance trade, tech & development cooperation.
• Institutions:
  • New Development Bank (NDB) – HQ: Shanghai.
  • Contingent Reserve Arrangement (CRA) – $100 bn liquidity pool.
  • Business Council, Think Tank, Academic Forum.
• Significance: ~45% of population, ~30% of global GDP (PPP). Driving de-dollarisation & Global South solidarity.
• India’s Focus: Multilateral reform, digital public goods, resilient supply chains, climate finance.

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