Why is BRICS exploring cross-border payments? |Explained

Published 2026-09-06 · Updated 2026-09-06 · 3 min · 562 words

UPSC CSE Context

Why in News

The 18th BRICS summit in New Delhi (September 2025) is expected to push for cross-border payment mechanisms, including linking digital payment systems and CBDCs.

Syllabus Connection

International Relations (BRICS, global financial architecture), Economy (cross-border payments, digital currency), and Science & Technology (CBDC, fintech).

Exam Relevance

Important for UPSC CSE Mains GS Paper 2 (international groupings) and GS Paper 3 (economy, technology); Prelims may test BRICS initiatives and CBDC concepts.

Core Issue

BRICS seeks alternatives to dollar-dominated cross-border payments.

Key Development

BRICS finance and central bank representatives met in Jaipur to discuss financial cooperation and wider use of national currencies.

Stakeholders

• BRICS member countries
• Central banks and finance ministries
• SWIFT
• Correspondent banks
• Bank for International Settlements (BIS)

Static Knowledge

High-Value Background

• Correspondent banking involves intermediary banks holding accounts with each other to facilitate cross-border payments.

Exam Linkage

• Useful for questions on global financial governance, de-dollarisation, and digital payment interoperability.

Concepts in Context

• Vehicle currency: a currency like the US dollar used as an intermediary in transactions between two other currencies.
• CBDC: central bank digital currency, a digital form of fiat money issued by a central bank.

Institutions and Mechanisms

• BRICS: grouping of Brazil, Russia, India, China, South Africa, expanded in 2024 to include new members.
• BIS: international financial institution owned by central banks, promotes monetary and financial stability.

Dynamic Analysis

International Relations

• BRICS push for alternative payment systems reflects dissatisfaction with Western dominance in global finance.
• Russia's sanctions experience drives urgency, but also makes others cautious about joining alternatives.
• India's proposal for UPI-CBDC links balances strategic autonomy with pragmatic cooperation.
• Success depends on convincing a critical mass of banks and regulators, a classic network effect challenge.

Economy

• High foreign exchange margins (up to 20% in some African corridors) burden developing economies.
• Direct national payment system links could reduce transaction costs and time.
• Declining correspondent banking relationships (20% drop 2011-2018) increase concentration risk.
• Use of national currencies in trade could reduce exchange rate volatility from dollar dependence.

Governance

• Regulatory harmonisation across BRICS is complex due to differing legal and financial systems.
• Sanctions compliance creates legal risks for banks joining alternative systems.
• Central bank coordination is essential for CBDC interoperability and settlement mechanisms.
• India's domestic digital payment success (UPI) provides a governance model for scalable systems.

Science and Technology

• CBDC design choices (wholesale vs retail, offline capability) affect cross-border usability.
• Interoperability standards are critical for linking diverse national payment systems.
• Cybersecurity and data privacy concerns must be addressed for trust in new systems.
• Distributed ledger technology could enable real-time settlement but faces scalability issues.

Mains Value Addition

Arguments

• Alternative payment systems can reduce transaction costs and enhance financial sovereignty for developing countries.
• However, network effects and sanctions risks create high barriers to adoption.
• India's UPI-CBDC linkage proposal demonstrates a middle path that leverages existing infrastructure.
• BRICS initiatives may accelerate global de-dollarisation but face internal divergences.

Examples

• India-Singapore UPI-PayNow linkage for remittances.

Data Points

• Active correspondent banking relationships fell by 20% between 2011 and 2018 (BIS).

Counterpoints

• Alternatives may fragment the global financial system, increasing compliance costs.
• Sanctions risk deters banks from joining systems perceived as anti-Western.
• Technical and regulatory interoperability remains a major hurdle.

Way Forward

• Develop common technical standards for linking national payment systems and CBDCs.
• Pilot bilateral linkages (like India-Singapore) to build trust and demonstrate feasibility.
• Engage with international bodies like BIS to ensure compliance with global norms.

Primary/reference source: World Affairs