Why is BRICS Exploring Cross-Border Payments?

06 Sep 2026

Tags: International Relations   Groupings   Regional Agreements

Source: The Hindu

Context: The 18th BRICS Summit, to be held in New Delhi in September 2026 under India’s chairship, is expected to discuss mechanisms for facilitating cross-border payments, including linking digital payment systems and Central Bank Digital Currencies (CBDCs).

• Finance ministries and central bank representatives of BRICS countries met in Jaipur on 12–13 August to discuss financial cooperation, payment systems and greater use of national currencies for trade settlement.

How Do Cross-Border Payments Currently Work?

• Cross-border payments generally pass through correspondent banks, as banks in two countries may not maintain accounts with each other.
• Example: If an importer in Cape Town pays an exporter in Chennai, the South African and Indian banks may route the payment through a larger international bank, often based in financial centres such as London or New York.
• Since relatively few banks directly hold both rand and rupee, the transaction may involve rand → U.S. dollar → rupee, making the dollar a vehicle currency even though the underlying trade involves neither a U.S. importer nor exporter.

What is SWIFT?

• Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a Belgium-based cooperative that provides a secure financial messaging network; it does not itself transfer or settle the money.
• It transmits payment instructions between financial institutions, while the actual settlement takes place separately through the banking system.
• SWIFT is overseen by the National Bank of Belgium along with G-10 central banks, including the U.S. Federal Reserve.
• It is used directly by 11,000+ institutions across 200+ countries, while smaller banks often access it indirectly through larger member banks.
• Its extensive network creates a strong network effect: alternative systems must attract a large number of banks and regulators before they become similarly useful.

Why are Cross-Border Payments Costly?

• Each intermediary/correspondent bank may charge a fee.
• Where two currency conversions are required, such as rand → dollar → rupee, foreign-exchange margins are effectively incurred twice.
• A 2019 BRICS survey found that Brazilian respondents reported foreign-exchange margins of around 2.5%, rising to 8.5% for payments in Africa and, in some cases, as high as 20%.
• Thus, multiple intermediaries, currency conversions and foreign-exchange margins can make cross-border transactions significantly more expensive.

Have Transaction Times Improved?

• Transaction speed was historically a major problem, but SWIFT Global Payments Innovation (gpi) has substantially reduced transaction times.
• However, structural delays remain because transactions may still pass through multiple institutions and regulatory/compliance processes.
• The Bank for International Settlements (BIS) found that active correspondent banking relationships declined by 20% between 2011 and 2018, with regional declines ranging from 12% to 30% and Latin America experiencing the sharpest decline.
• Despite the shrinking correspondent network, payment volumes continued to grow, increasing pressure on the remaining network.

Why Does BRICS Want to Change the Existing System?

• Developing economies can become exposed to the monetary policies and financial conditions of countries issuing dominant currencies such as the U.S. dollar, euro and Japanese yen.
• The 2024 BRICS report, under Russia’s chairship, argued that concentration in the existing financial system contributes to higher transaction costs.
• Alternative payment systems face a network-effect problem: they need widespread participation by banks and regulators before they become viable.
• Sanctions risk is another barrier. Several Russian banks were disconnected from SWIFT in 2022 following Russia’s invasion of Ukraine, encouraging Russia to push strongly for alternatives.
• However, other countries remain cautious because participating in systems designed to bypass sanctions could itself expose their financial institutions to secondary sanctions or geopolitical risks.

What Alternatives are Being Explored?

1. Direct Linking of National Payment Systems

• Instead of routing payments through multiple correspondent banks and converting currencies through the dollar, national payment systems could be directly interconnected.
• India and Singapore already provide an example by linking Unified Payments Interface (UPI) with Singapore’s PayNow for remittances.
• However, creating separate bilateral links between every pair of countries would become increasingly complex and difficult to scale.

2. Common Payment Hub — Project Nexus

• A scalable alternative is a shared hub through which participating countries connect their domestic payment systems.
• Project Nexus, designed by the BIS and handed over to a company established by six central banks, including the Reserve Bank of India (RBI), follows this approach.
• It is expected to go live in 2027.
• Project Nexus is not a BRICS initiative, although its architecture provides a possible model for BRICS discussions.

3. CBDC-Based Settlement

• BRICS discussions may extend the payment-linkage approach to Central Bank Digital Currencies (CBDCs).
• Here, central banks issue digital versions of national currencies that can be used as settlement assets between financial institutions, rather than being equivalent to retail digital currencies held by individuals.
• CBDCs could be exchanged through a common platform, allowing both sides of a currency swap to settle simultaneously or not at all.
• This can reduce counterparty/settlement risk, accelerate settlement and lower the amount of capital banks need to keep aside against such transactions.

What is mBridge?

• mBridge was a BIS-led multi-CBDC platform involving the central banks of China, Thailand, Hong Kong and the UAE.
• The BIS handed the platform over to its participating central banks in October 2024.
• It demonstrated the potential for CBDCs to facilitate direct cross-border settlement.
• According to figures from the People’s Bank of China reported by Reuters, more than 95% of its settlement volume was in China's digital yuan.

What is BRICS Clear?

• The 2024 Kazan Declaration agreed to “discuss and study the feasibility” of an independent settlement system called BRICS Clear.
• However, the Rio Declaration in 2025 did not mention BRICS Clear, indicating that the proposal had not emerged as a clearly established BRICS initiative.

India’s Position

• India has proposed linking BRICS members’ CBDCs for trade and tourism-related payments.
• Indian officials have primarily presented such initiatives as mechanisms to reduce transaction costs and accelerate settlement, rather than as efforts to replace the U.S. dollar.
• This differs from some Russian proposals and views among Brazilian economists, which envisage broader alternative financial arrangements aimed at reducing dependence on the dollar.

Geopolitical Dimension

• In November 2024, U.S. President Donald Trump threatened 100% tariffs on BRICS countries if they moved away from the dollar and an additional 10% tariff on countries pursuing vaguely defined “anti-American” BRICS policies.
• These threats were not implemented.
• Although the threats were not specifically directed at payment systems, the geopolitical sensitivity surrounding de-dollarisation may partly explain India's cautious framing of the initiative around efficiency, lower costs and faster settlement, rather than replacing the dollar.

Key Concept: Vehicle Currency

• A vehicle currency is an intermediary currency used to facilitate transactions between two currencies that are not directly or efficiently exchanged.
• In the India–South Africa example, the U.S. dollar can function as the vehicle currency between the rupee and rand, even though the underlying trade is between India and South Africa.