GS-II-International Relation

Key Dollar De-risking Initiatives

• BRICS Pay: BRICS is developing "BRICS Pay," an interoperable payment system intended to allow cross-border transactions without relying on the US dollar or the SWIFT network. It uses national currencies and digital platforms, emphasizing security, speed, and decentralization.?
• Settlement in Local Currencies: Members have signed bilateral agreements to settle trade in local currencies (such as rupee, ruble, yuan, and real), notably in China–Russia and Brazil–China trades. India increasingly settles oil imports from Russia in rupees.?
• New Development Bank (NDB): BRICS launched the NDB, which provides financial resources to member countries mostly in their local currencies and helps bypass dollar-linked credit risks and IMF/World Bank conditionalities.?
• Digital & Blockchain-Based Payment Systems: Efforts are underway to develop blockchain-based payment platforms, such as BRICS Bridge, utilizing national central bank digital currencies (CBDCs) and local currencies, aiming for future gold-backed digital assets.?
• Expansion & Financial Sovereignty: BRICS has expanded membership to countries like Saudi Arabia, the UAE, and others, which may further influence the movement away from petrodollar dependence in global energy trade.
• BRICS Symbolic Currency Signal: At the Kazan summit, BRICS unveiled a symbolic BRICS banknote, signalling intent to challenge dollar dominance. 

Constraints of the BRICS Pay Initiative
 
Political and Geopolitical Constraints

• Divergent National Interests: Each BRICS member prioritizes its own national payment system for global expansion (e.g., China's CIPS, India's UPI, Brazil's Pix, Russia's SPFS). This creates friction and a lack of consensus on whose framework should lead the integrated system, or whether a neutral system is viable.
• Geopolitical Rivalries and Trust Deficit: Pre-existing political tensions, particularly between India and China, hinder a unified commitment and a common governance model. There are concerns among some members about potential Chinese dominance if the system becomes too reliant on China's financial infrastructure.
• External Pressure and Western Retaliation: The initiative is perceived as a challenge to the Western-led financial order and the dominance of the US dollar. This could lead to countermeasures, such as threats of secondary sanctions, tariffs, or increased scrutiny from Western nations, which may deter some members or potential external partners from full commitment.
• Lack of Unified Political Commitment: While some nations like Russia are strong proponents, others, such as Brazil and India, have shown more caution due to strong existing economic ties with the US and Europe. 

Technical and Operational Constraints

• Interoperability Challenges: The national payment systems of BRICS countries have different underlying technologies, messaging standards (e.g., SWIFT vs. domestic formats), and security protocols. Aligning these diverse infrastructures into a single, seamless, and secure cross-border system is a complex and resource-intensive engineering challenge.
• Regulatory and Legal Barriers: Harmonizing diverse national regulations, including Know Your Customer (KYC), anti-money laundering (AML), counter-terrorist financing (CFT), and data localization laws across all member states, poses a significant hurdle.
• Need for Robust Infrastructure: A viable alternative to SWIFT requires a strong, resilient, and scalable infrastructure. Building this from scratch or integrating existing ones demands substantial effort and testing with a broad range of banking software systems. 

Economic and Financial Constraints       

• Absence of a Common Currency: BRICS Pay facilitates transactions in local currencies, but the lack of a unified reserve or common currency introduces complexity in terms of liquidity, foreign exchange (FX) risk, and volatility management. Deep FX markets and central bank liquidity lines are needed to manage spreads and costs.
• US Dollar's Entrenched Position: The US dollar's overwhelming dominance in global trade and finance, and SWIFT's extensive, established network (over 11,000 institutions in 200+ countries), represent a massive network effect that is difficult to dislodge.
• Trust Deficit and Limited Global Acceptance: To succeed globally, BRICS Pay needs to convince non-BRICS banks and traders of its reliability, security, and neutrality. A trust deficit may limit its adoption outside of like-minded nations.
• Varying Economic Development: The economic structures and levels of financial development vary widely among member nations, making it difficult to implement a unified system that benefits all equally. 

 
Why a BRICS Common Currency Remains Unlikely
 
Obstacles to a common BRICS currency

• Economic disparity: The BRICS member states have vastly different economic structures, growth rates, and levels of development. For example, China's manufacturing-heavy economy contrasts with India's service-based economy and the commodity-dependent economies of Brazil and Russia. Coordinating a single monetary policy that suits all members would be nearly impossible.
• Political differences and rivalry: The bloc is a diverse mix of political systems with different foreign policy goals and strategic interests. Significant geopolitical tensions exist, particularly between India and China. This deep-seated mistrust prevents the kind of consensus and cooperation needed for a unified currency.
• Competing national currency agendas: Some major BRICS members, especially China and India, are prioritizing the internationalization of their own currencies rather than creating a new one. India has stated that it is not actively pursuing a common BRICS currency.
• China's dominance: Smaller BRICS nations and India fear that a new common currency would be dominated by China's economy, effectively making it a proxy for the yuan and eroding their own monetary sovereignty.
• Lack of unified financial architecture: Unlike the Eurozone, the BRICS countries lack a common banking and fiscal union, a single central bank, or a dense network of trade agreements. Establishing these structures would require an immense, long-term effort.
• The dollar's entrenched dominance: The US dollar's unrivaled liquidity and stability make it extremely difficult to displace. It accounts for over 50% of global foreign exchange reserves and a vast majority of international trade transactions. 

BRICS's alternative strategy
 

• Increased local currency trade: BRICS members are prioritizing settlements in their own national currencies for trade and financial transactions. In 2025, about 90% of intra-BRICS trade was settled in local currencies.
• BRICS Pay: The bloc is developing a cross-border digital payment system, BRICS Pay, as an alternative to the SWIFT network. It is designed to be interoperable with national payment systems like India's UPI, China's CIPS, and Brazil's Pix.
• Alternative financial institutions: The New Development Bank (NDB), established by BRICS, is increasingly issuing loans in local currencies, further reducing reliance on the dollar. 

Conclusion  

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