Why is BRICS exploring cross-border payments?

International Relations & Economy · 6 September 2026 · Based on The Hindu (original report)

2-minute summary

BRICS nations are actively exploring alternative cross-border payment mechanisms to bypass traditional networks like SWIFT, reduce transaction costs, and mitigate risks associated with over-reliance on dominant currencies like the US dollar. Ahead of the 18th BRICS Summit in New Delhi, member states discussed linking digital payment systems and Central Bank Digital Currencies (CBDCs). Currently, cross-border payments rely on correspondent banking and SWIFT, which act as intermediaries, leading to high foreign exchange margins and exposure to unilateral Western sanctions. The weaponisation of SWIFT during the 2022 Ukraine conflict has accelerated the push for de-dollarisation and local currency settlements among emerging economies.

Why it's in the news

Ahead of the 18th BRICS Summit in New Delhi (September 2026), finance ministries and central bank representatives met in Jaipur to discuss financial cooperation, local currency trade settlement, and alternative cross-border payment mechanisms to reduce reliance on SWIFT and the US dollar.

Background and context

Traditional cross-border payments rely on a network of correspondent banks and the SWIFT messaging system. Because most bilateral trades (e.g., India-South Africa) lack direct currency pairs, they use the US dollar as a 'vehicle currency,' incurring double conversion costs. Following the 2022 Ukraine conflict, Western nations weaponised this system by disconnecting major Russian banks from SWIFT. This highlighted the geopolitical risks of a centralized financial architecture, prompting BRICS nations to accelerate efforts toward de-dollarisation, local currency settlement, and interconnected digital payment systems (like India's UPI and CBDCs).

Constitutional provisions

Seventh Schedule (Union List - Entry 36) — Deals with Currency, coinage and legal tender; foreign exchange, which governs India's external capital controls and cross-border payment policies.
Seventh Schedule (Union List - Entry 10) — Deals with Foreign Affairs, under which India participates in multilateral forums like BRICS to negotiate international financial architectures.

Committees and reports

BRICS Survey of Cross-Border Payment Systems (Brazil) — Highlighted high foreign exchange margins (up to 8.5% in Africa and 20% in some cases) in traditional correspondent banking.
BIS Correspondent Banking Report — Found that active correspondent banking relationships globally fell by 20% between 2011 and 2018 due to commercial reasons, despite growing payment volumes.

Government schemes

Central Bank Digital Currency (CBDC) - e-Rupee — India's sovereign digital currency, which is being explored for bilateral and multilateral cross-border payment linkages.

International organisations

BRICS (Brazil, Russia, India, China, South Africa) — An intergovernmental organization driving the initiative for alternative cross-border payment systems to challenge Western financial hegemony.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) — A Belgium-based cooperative messaging network overseen by G-10 central banks, currently dominating global financial messaging.
Bank for International Settlements (BIS) — An international financial institution that analyzed the decline in global correspondent banking relationships.

Mains practice: The weaponisation of global financial platforms like SWIFT has accelerated the push for de-dollarisation and alternative cross-border payment mechanisms. Analyze this statement in the context of BRICS' recent initiatives and its implications for India.

The exclusion of Russian banks from the SWIFT network in 2022 underscored the geopolitical vulnerabilities of relying on a centralized, Western-dominated financial architecture. This has catalyzed BRICS nations to explore alternative cross-border payment mechanisms and promote 'de-dollarisation.'

• **Structural Vulnerabilities of SWIFT**: SWIFT is a secure messaging network overseen by G-10 central banks. Its centralized nature allows Western powers to enforce unilateral sanctions, threatening the economic sovereignty of developing nations.

• **High Costs and Inefficiencies**: Traditional cross-border payments rely on correspondent banking, requiring double currency conversion (e.g., local currency to USD, then USD to target currency). This incurs high foreign exchange margins (up to 8.5% in Africa) and transaction delays.

• **BRICS Initiatives**: BRICS is exploring the integration of national fast-payment systems (like India's UPI) and Central Bank Digital Currencies (CBDCs) to enable direct peer-to-peer cross-border settlements, bypassing the USD as a vehicle currency.

• **Implications for India**:

- *Strategic Autonomy*: Reduces vulnerability to secondary US sanctions when trading with sanctioned nations (e.g., Russia, Iran).

- *Economic Efficiency*: Lowers transaction costs for Indian exporters and boosts the internationalisation of the Indian Rupee (INR).

- *Geopolitical Balance*: While India supports local currency trade, it must balance this with its strategic ties with the West, avoiding a complete alignment with China's anti-Western rhetoric.

Alternative payment mechanisms are vital for a multipolar economic order. India must leverage its digital public infrastructure (UPI) to champion a secure, decentralized, and inclusive global financial system.

Prelims practice questions

Q1. With reference to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), consider the following statements: 1. It is an international financial institution that facilitates the actual transfer and settlement of funds globally. 2. It is a Belgium-based cooperative overseen by the National Bank of Belgium and G-10 central banks. Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Answer: B. Statement 1 is incorrect because SWIFT is a messaging network, not a financial institution that transfers or settles funds. It enables institutions to exchange payment instructions, which are settled separately. Statement 2 is correct as SWIFT is a Belgium-based cooperative overseen by the National Bank of Belgium along with the G-10 central banks.

Q2. In the context of international trade and finance, the term 'Vehicle Currency' refers to:

A third-party currency used to facilitate trade transactions between two countries whose currencies are not widely traded.
The currency issued by the International Monetary Fund (IMF) to settle sovereign debts.
A digital currency used exclusively for purchasing electric vehicles.
A domestic currency pegged to a basket of foreign currencies to maintain stability.

Answer: A. A vehicle currency is a dominant international currency (like the US Dollar) used as an intermediary to facilitate trade transactions between two countries whose currencies are not widely traded directly (e.g., converting South African Rand to USD, then USD to Indian Rupee).

Q3. Consider the following statements regarding the correspondent banking system: 1. It requires banks in different countries to hold accounts with each other or route payments through a larger international intermediary bank. 2. According to the Bank for International Settlements (BIS), active correspondent banking relationships globally have steadily increased since 2011 due to rising trade volumes. Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Answer: A. Statement 1 is correct as correspondent banking relies on a chain of intermediary banks holding accounts with each other. Statement 2 is incorrect because the BIS found that active correspondent banking relationships fell by 20% between 2011 and 2018 due to commercial reasons, despite growing payment volumes.

Revision flashcards

What is SWIFT and where is it headquartered? SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a secure messaging network for financial institutions, headquartered in Belgium.
Why do traditional cross-border payments involve a 'vehicle currency'? Because direct currency pairs (e.g., Rupee-Rand) are rarely held by banks, payments are routed through a dominant intermediary currency like the US Dollar.
What trend did the BIS identify regarding correspondent banking relationships between 2011 and 2018? Active correspondent banking relationships fell globally by 20% due to commercial reasons, despite growing payment volumes.
What alternative payment mechanism is India proposing at the BRICS forum? Linking national fast-payment systems (like UPI) and Central Bank Digital Currencies (CBDCs) for direct cross-border settlements.
Who oversees the SWIFT messaging network? The National Bank of Belgium along with the G-10 central banks, including the U.S. Federal Reserve.