BRICS Digital Payments: Challenging Western Financial System

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Travelling abroad comes with many headaches. One of them is exchanging currency by either visiting a money exchange booth or withdrawing funds from a local ATM. Both of these options are either expensive or they could end up being a scam. Many places now accept credit cards or pay using a smartphone through options like Google Pay or ApplePay or there is the option to pay using a QR code that is attached to a financial account. The QR code payment method is widespread in Asian countries but it is starting to become popular elsewhere. It is used widely in China where WeChat Pay and AliPay handles “over $4.5 trillion in annual QR transactions” for payments such as street food vendors, taxi drivers, and vending machines.” Using this technology in neighbouring countries is especially helpful to make it easier to handle transactions, but there is still the need to exchange the currency when travelling. This is where the BRICS comes in to change the financial system.

First it is important to understand how payments are made without using cash. Making an electronic payment requires a messaging service to tell your bank account to send funds to another bank account. The most popular service is called Society for Worldwide Interbank Financial Telecommunication or SWIFT. With 11,500 banking institutions using the Belgian company to facilitate these messages, they are one of the dominant players in making sure your money gets to the person or company you are paying. The other dominant player is the US dollar, which is used in most global trade as it is the most powerful currency. That means that most of the messages are conducted in US dollars, even when SWIFT can be used with other currencies. 

When Russia invaded Ukraine in 2022, financial sanctions became a significant tool for the West to avoid military conflict. One of those tools is the ban on specific banking institutions from using the SWIFT messaging service. It was a way of isolating Russian banks from accessing funds from funds internationally. Years later, digital technology has evolved for cross-border payments. BRICS Pay is looking for a way around western sanctions as well as establishing economic sovereignty “that enables direct settlement in national currencies or future Central Bank Digital Currencies (CBDCs).” What is so interesting about this system is that BRICS Pay is not trying to consolidate into one currency, like the Euro, but instead using the currency of each individual country to facilitate cross-border payments directly. The following explains how the transactions works and why it reduces exposure to the West:

“For example, an Indian importer purchasing goods from Brazil could pay in rupees, while the Brazilian exporter receives funds in reais. BRICS Pay would manage the exchange process behind the scenes, significantly reducing exposure to dollar exchange rates, intermediary fees, and political risks. This model is particularly attractive for large-scale trade in energy, raw materials, agricultural products, and industrial goods — sectors where BRICS countries play a dominant global role.”

BRICS countries see this new system as a way of creating a multipolar currency system that will give states alternatives with financial institutions. 

While BRICS Pay is in its early stages of development, many countries from the Emerging Market (EM) are discussing opportunities to use their local currency for international trade within this system. With the US dollar and Euro dominant in the currency space, other countries are looking to change the economic balance of power and challenge the international system to facilitate cross-border trade. Most financial analysts will tell you to diversify your portfolio and not be heavily reliant on one asset. EMs and BRICS are looking for other opportunities and to develop a system that is beneficial to themselves so that they do not have to be subjected to the West’s financial system, especially when a geopolitical crisis occurs.