Latest news with #BricsCross-BorderPaymentsInitiative
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First Post
08-07-2025
- Business
- First Post
With cross-border payment system, can Brics countries take on the US dollar?
At the recently concluded Brics summit held in Brazil, leaders of member countries reaffirmed their commitment to the Brics cross-border payments initiative. First proposed in 2015, this system aims to make transactions between nations more accessible, faster and safer. It is also seen as a way to challenge the hegemony of the American dollar in world trade. However, progress on this proposal has been slow read more Brics nations are actively pursuing the development of a cross-border payments system to facilitate faster, cheaper, and more efficient transactions. Reuters The 17th Brics Summit held in Brazil's Rio de Janeiro has come to an end. The one big takeaway from the annual summit was that the leaders of the Brics countries have decided to move forward on implementing a cross-border payments system, creating an alternative system to SWIFT, the main global interbank payment network. Notably, this development comes amid tariff threats from US President Donald Trump, who views the bloc and its efforts at designing a new payment system as attempts to dethrone the dollar — aka dedollarisation. STORY CONTINUES BELOW THIS AD Brics leaders and a new payment system The heads of state of the bloc's member countries — including Prime Minister Narendra Modi — said they are committed to implementing a cross-border payments system, which would make transactions between member countries more accessible, faster and safer. Moreover, it would be an alternative to the existing system, known as the SWIFT Banking System. The Leaders' Declaration read, 'We task our ministers of finance and central bank governors, as appropriate, to continue the discussion on the Brics Cross-Border Payments Initiative, and acknowledge the progress made by the Brics Payment Task Force in identifying possible pathways to support the continuation of discussions on the potential for greater interoperability of Brics payment systems.' India's Prime Minister Narendra Modi, Brazil's President Luiz Inacio Lula da Silva and South Africa's President Cyril Ramaphosa attend a meeting during the BRICS Summit in Rio de Janeiro, Brazil. Reuters The statement further read, 'In this regard, we welcome the 'Technical Report: Brics Cross-border Payments System', which reflects members' revealed preferences, and should play a pivotal role in our efforts to facilitate fast, low-cost, more accessible, efficient, transparent and safe cross-border payments among Brics countries and other nations and which can support greater trade and investment flows.' Later, in a press conference, Ministry of External Affairs (MEA) Secretary Dammu Ravi told reporters that India backed the Brics Cross-Border Payments Initiative and that it would 'gain traction' in the coming days. 'Countries are looking for alternatives. Interoperability in payments is a faster mechanism in terms of being able to do cross-border trading. This is a low-cost solution. India has been successfully implementing it (through United Payments Interface) and we are also entering into bilateral arrangements with many countries. 'We are hopeful that in the days to come, there will be traction. And countries will accept it, as it is beneficial for most of them,' the senior official said. STORY CONTINUES BELOW THIS AD About the Brics Cross-Border Payments Initiative But what exactly are the members of Brics proposing? What is this Brics Cross-Border Payments Initiative? The Brics Cross-Border Payments Initiative (BCBPI) was first proposed in 2015 to facilitate trade between Brics nations easily by using local currencies, thereby reducing reliance on the US dollar. In the recent past, Russia and China — two of Brics' biggest members — have long been trying to move away from trade in the US dollar. For Russia, since it invaded Ukraine in 2022 and began the war, its forex reserves in dollars and euros have been frozen and its financial system has been heavily hit by sanctions. It has also been barred from the West-powered SWIFT banking system. Similarly, China too, has pushed for less dependency on the US dollar; it has launched a sweeping campaign to promote the yuan's global role. In a speech last month, Chinese central bank governor Pan Gongsheng outlined a vision in which the country's financial markets are more open and the yuan plays a central role in the world's capital flows. STORY CONTINUES BELOW THIS AD Brics countries have been pushing against the hegemony of the US dollar. Representational image/Pixabay Other Brics countries are also wary of SWIFT's universality. Many countries state that they lack influence in decision making in the use of SWIFT and are wary of using it as a political tool. This has led to many non-Western countries to seek an alternative, which, in turn, would also reduce dependency on the US dollar. In 2023, Brazil's president Luiz Inácio Lula da Silva also called on countries to work towards replacing the US dollar with their own currencies in international trade. 'Why can't we do trade based on our own currencies?' he said, adding, 'Who was it that decided that the dollar was the currency after the disappearance of the gold standard?' But it's easier said than done However, realising this dream is complicated and there are several roadblocks to it. There have been disagreements on payment mechanisms, types of currency to be used and how to implement the infrastructure. Security concerns also have to be negotiated. Some of Brics' members — namely Russia and Iran — face sanctions from the West, which makes the cross-border payments system for trade even more complicated. Some member countries' central bank systems remain unprepared for cross-border integration, and the presence of several nonconvertible currencies further complicate the process. STORY CONTINUES BELOW THIS AD As Hugh Thomas, lead analyst of commercial and enterprise at Javelin Strategy & Research, noted, 'There's no real governing body between them they could use to build an infrastructure to replace Swift and dollar-denominated transactions. Add to that you'd basically have China running the show, and the fact that building shared infrastructure with Russia raises a lot of red flags with the US, and the case becomes questionable.' Sources have also told Bloomberg that the recent expansion of Brics — it has increased its membership to include Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia and the United Arab Emirates. Trump's push back on Brics The move by Brics to go ahead with its cross-border payments initiative has earned the ire of US President Donald Trump. In a post on Truth Social, the US president wrote, 'Any country aligning themselves with the anti-American policies of Brics, will be charged an additional 10 per cent tariff. There will be no exceptions to this policy. Thank you for your attention to this matter!' This threat follows the one he had issued in February in which he warned that Brics nations would face '100% tariffs' if they attempted to undermine the role of the US dollar in global trade. However, Brazilian leader has hit back at the American leader, saying the world 'doesn't need an emperor'. At the end of the Brics summit, Lula struck a defiant tone when asked by reporters about Trump's tariff threat, 'The world has changed. We don't want an emperor.' STORY CONTINUES BELOW THIS AD 'This is a set of countries that wants to find another way of organising the world from the economic perspective,' he said of the bloc, adding, 'I think that's why the Brics are making people uncomfortable.' He also asserted that global trade didn't need to solely rely on the US dollar. 'The world needs to find a way that our trade relations don't have to pass through the dollar,' Lula told journalists. With inputs from agencies
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Business Standard
07-07-2025
- Business
- Business Standard
Decade-old Brics ambition to push local currency remains a pipe dream
By Martha Beck and Mirette Magdy Brics countries once again failed to make significant strides in the cross-border payments system for trade and investment they've been discussing for a decade. In a statement released as they kicked off their meeting in Brazil Sunday, leaders committed to additional talks on the potential for greater trade integration of the 10-nation bloc. 'We task our ministers of finance and central bank governors, as appropriate, to continue the discussion on the Brics Cross-Border Payments Initiative,' the statement reads. A survey prepared by the Brazilian central bank will be presented at the two-day Rio de Janeiro summit. It's a missed opportunity for Brics as the dollar comes under continued pressure from President Donald Trump's erratic policies. The greenback had the worst start to a year since 1973 as Trump's trade war and attacks on the Federal Reserve's hesitancy to lower interest rates roiled markets, calling into question the longstanding outperformance of US assets and sending investors fleeing in search of alternatives. It's created a boon for emerging markets that traders expect to extend further. While all members are supportive of the idea of cross-border payments, first cited in the statement of the bloc's 2015 summit, the technical aspects of integration are complicated. Central bank systems in some countries are not yet ready, three people familiar with the discussions said. It will take time to adapt those, they said, adding that it's unlikely to happen anytime soon. Roadblocks Discussions involve payment mechanisms, types of currencies used, how to implement infrastructure and how to share costs. There are security concerns about the integrated systems, two people said, adding that the Brics bloc's recent expansion has also caused delays. The fact that several of the bloc's currencies are non convertible, and existing sanctions on member states Iran and Russia further complicate discussions, one person said. Some countries may argue that the cost involved in setting up and maintaining a unified system would not be justified given what they already have in terms of bilateral trade, another added. All asked not to be identified sharing details of private conversations. China, for one, has taken advantage of the US disarray and launched a sweeping campaign to promote the yuan's global role. In a speech last month, Chinese central bank governor Pan Gongsheng outlined a vision in which the country's financial markets are more open and the yuan plays a central role in the world's capital flows. Beijing is exploring the launch of the country's first domestic currency futures, which could compete with similar hedging tools in offshore markets like Singapore and Chicago, and is expanding its own payment system, known as CIPS, to cover more foreign banks. Trump pushback Brics leaders also reaffirmed their commitment to expand local currency financing, diversify funding sources and strengthen cooperation in trade to promote inclusive growth and sustainable development. A document obtained by Bloomberg that outlines the latest thinking by the bloc shows that discussions around a new investment platform dubbed NIP are similarly stalled. The platform is seen as potentially filling a gap in development finance, providing more flexibility and reducing the dependency on hard currency financing. But 'given the variety of approaches and proposals raised, and the complex nature of the issues involved, further technical dialogue will be essential to advance a common understanding of the Platform's potential added value and operational framework,' it reads. Trump has threatened to slap 100 per cent levies on Brics if they ditch the dollar in bilateral trade. The pushback, in turn, has spurred interest in developing local payment systems and other instruments that can facilitate commerce and investment between the nations. The idea of abandoning the dollar and setting up a common currency for the bloc isn't under discussion, several officials have said. The US leader's response has not delayed Brics conversations for the integrated systems, three people said. 'One of the ways to bring countries closer together is to reduce financing costs for trade operations. And one of the ways is to use more local currencies,' Tatiana Rosito, secretary for international relations at Brazil's Finance Ministry, said in an interview. 'Banks say that, depending on the period in which you carry out the operation, they may need to use the rate converting renminbi to dollars. But the goal in the end is you one day don't have it.' If there's a liquid market, 'you will have a direct exchange rate real-renminbi, real-rupee, real-rand,' she said. 'But this will depend on whether you have a critical mass and a volume of trade investments.' High rates The Brics statement also references the added challenge presented by 'fluctuations in financial and monetary policies in some advanced economies' for countries already grappling with high debt levels. 'High interest rates and tighter financing conditions worsen debt vulnerabilities in many countries,' it reads. The bloc is also in discussions to establish a multilateral guarantees initiative which would focus on improving 'creditworthiness in the Brics and the Global South.' The initiative, dubbed BMG, will be incubated within the NDB and start without additional capital contributions, according to the statement.
