Brics+ eyes alternative payment systems, but dollar dominance looms

It is a necessary risk mitigation strategy in an uncertain world

The Brics has been among the first inter-regional organisations to be targeted by the new US administration. President Donald Trump has announced a 100 per cent tariff if the grouping proceeds with the objective of de-dollarisation. The apprehension of a currency alternative to the dollar under the aegis of the Brics has gained ground with the expansion of its membership in 2024 and the use of alternative payment systems for trade settlement that was to some extent successful in blunting the economic sanctions on Russia in the wake of the Ukraine crisis.  Furthermore, with the US-China bilateral relationship getting increasingly defined by trade and tech competition, China’s efforts to internationalise the renminbi (RMB) further aggravate US concerns about the dollar.

 

Originally propounded as an acronym by Goldman Sachs for the leading emerging market economies of Brazil, Russia, India, China, Bric held its first summit as an inter-regional organisation in 2009. South Africa was included in 2010. The next round of expansion , which happened only in 2024, had four new members — the UAE, Egypt, Ethiopia and Iran — join Brics, along with the creation of a new category of partner countries. Most recently, in January 2025, Indonesia has also formally joined as a member. The expanded grouping with 10 members and nine partners referred to as Brics plus/ Brics+ accounts for about 55 per cent of the global population, 40 per cent of global gross domestic product (GDP) at purchasing power parity (PPP), and almost a quarter of global merchandise exports.

 

Thus, with sufficient economic heft, Bric+ is being viewed as representative of the voice of the Global South as well as a progenitor of an alternative global order. In particular, fostering financial and trade cooperation through a Brics cross-border payment system, minimising trade barriers, and settling trade transactions in local currencies among partner countries was emphasised in the leaders’ joint statement at the most recent meeting held in 2024 in Kazan, Russia. While having caught the attention of the West, several doubts have been raised about the practicality of these objectives, especially the proposed alternative system of settlement of trade transactions.

 

The diversity of political systems and levels of economic development across member countries is considered a major impediment to the realisation of these ambitions of Brics plus. In addition, given global dominance of the dollar in central bank forex reserves, international debt and foreign currency trading and export invoices, doubts have been raised on the feasibility of an alternative currency for trade settlement. Notwithstanding the desire among member economies to reduce their dependence on the dollar, particularly after the West denied Russia access to the Society for World Interbank Financial Telecommunications (SWIFT) payment system, effectively locking it out of the world economy, the extent to which major Brics economies would risk their relationship with the US is questionable. China and India, both leading buyers of oil from Russia over the past two years, now face an altered context of transactional bilateralism with the US, their largest export market. The scope for these two economies and the other member countries to move away from the dollar towards developing alternative currency, trade and financial mechanisms may, therefore, be limited. There may also be a contradiction with these larger member economies seeking greater representation in the existing international financial institutions and reform of the multilateral order.

 

However, what cannot also be ignored is the evolving landscape of payment systems and financial infrastructure across some of the Brics member economies, even though their use may still be limited to bilateral or regional trade and financial transactions. China, in an attempt to overcome the limitations imposed by its relatively closed capital account, has set up alternative institutional structures and financial arrangements, such as bilateral swap lines and offshore clearing banks. RMB clearing licences are given to both foreign branches of Chinese banks and even foreign bank branches. These complementary structures are buttressed by the inclusion of the RMB in special drawing rights (SDRs) and global bond indices. This has contributed to a higher share of trade transactions being settled in RMB.

 

Available literature in this context highlights that even though the global use of the RMB is small—about 2 per cent of total cross-border transactions—there are regional variations within this trend. A greater use of RMB is evident in some Asian and Latin American economies, as well as parts of Africa. These regional trends reflect not just geographical and political proximity, but also a high trade intensity of these economies with China, given its centrality in the dense network of global value chains, as well as increasing investments, often as a part of the Belt and Road Initiative (BRI). The use of RMB in crisis situations has also been evident, as in the case of Argentina using China’s Central bank swap line to settle part of its debt with the IMF in 2023.

 

India has also been actively signing memorandums of understanding with countries like the UAE, Malaysia and Indonesia for trade settlement in local currencies. The arrangement allows exporters/ importers to invoice in their domestic currencies, thereby optimising settlement costs and speed. Additionally, the arrangement is expected to use India’s successful Unified Payments Interface for facilitating digital payments. All other major Brics member economies — China, Russia, Brazil, Indonesia — too have their own digital payment systems. The digital wallet technology and quick response code systems of these payment mechanisms can perhaps be used to develop the cross-border payment and messaging system to facilitate trade among member countries in their local currencies. This will help reduce the risk of sole dependence on the SWIFT and a single currency— the dollar. The compatibility and inter-operability of these national payment systems and local fintech infrastructure remains to be worked out. Apart from the technological aspect, developing a common regulatory framework that aligns with individual, national regulations will also be a challenging task for the Brics+ member countries.

 

In the current global context of growing uncertainty, weaponisation of tariffs, and frequent threat of sanctions, it is important that the Brics+ cross-border payments system is viewed and promoted as a necessary risk diversification strategy and a means to develop an intra-Bric+ trading mechanism. It is not necessarily aimed at, or yet even capable of challenging the US dollar.

 

The author is professor of economics, School of International Studies, JNU, and author of India’s Trade Policy in the 21st Century, Routledge: London, 2022.

 

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