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Relevance: GS-II (International Relations); GS-III (Economy: International Trade) Source: Global Economy & Trade Updates, September 2026

BRICS is Pushing for Local Currency Trade

1 · News

Most international trade is conducted using the US Dollar. However, this forces developing countries to pay high conversion fees to Western banks and leaves them vulnerable to sudden US economic sanctions. Ahead of the 18th BRICS Summit in New Delhi, member nations are aggressively pushing to change this.
This process is known as “De-dollarization.” The expanded 10-member BRICS group is now working to bypass the US Dollar entirely by trading in their own local currencies (like the Indian Rupee) and linking their domestic digital payment systems such as CBDC. This shift aims to protect their economies, reduce trading costs, and end Western financial dominance.

2 · The De-Dollarization Shift

Step 1: The Dollar Monopoly
Historically, cross-border trade required using the US Dollar, which involves paying heavy transaction fees and exchange markups to American middleman banks.
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Step 2: The SWIFT Weaponization
In 2022, Western nations disconnected Russian banks from SWIFT (the global payment messaging system), proving the US Dollar can be weaponized during geopolitical conflicts.
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Step 3: The Expanding Bloc
With 10 members today, BRICS controls 27% of global output. Their deep trade dependency on one another gives them the economic power to create a new financial system.
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Step 4: Local Currency Trade
Nations are now bypassing the Dollar by using direct bilateral arrangements, such as the Rupee-Dirham or Rupee-Ruble systems, effectively keeping trade money within their own borders.

3 · Key Economic Concepts

BRICS Pay
The New Network
A decentralized digital system designed to link local payment networks (like India’s UPI, Russia’s Mir, and China’s UnionPay) for smooth cross-border transactions without Western interference.
Special Vostro Accounts (SRVA)
Trading in Rupees
An RBI framework allowing foreign banks to open special accounts in India. This lets partner countries invoice and settle their trade directly in Indian Rupees.
Asymmetric Dependency
The China Factor
While most BRICS nations depend heavily on the bloc for imports, China’s reliance is very low. This raises concerns about the Chinese Renminbi eventually dominating the new system.
SWIFT System
The Global Messenger
The primary messaging network used by global banks to securely send money. Being blocked from SWIFT effectively paralyzes a country’s ability to trade internationally.

Prelims Quick Facts: Institutions & Funds
New Development Bank (NDB) Set up in 2014, the BRICS bank officially mandates expanding local currency financing to at least 30% of its total loans to protect countries from dollar fluctuations.
Contingent Reserve Arrangement (CRA) A massive $100 billion emergency liquidity fund created by BRICS to help member nations survive severe, short-term financial crises without relying on the IMF.
Local Currency Settlement System (LCSS) A prime example is the bilateral agreement between the RBI and the UAE Central Bank, linking India’s UPI with the UAE’s AANI to trade smoothly in Rupee-Dirham.

MCQ Practice Question
Q. With reference to BRICS initiatives and global trade settlement mechanisms, consider the following statements:

  1. The Contingent Reserve Arrangement (CRA) is a $100 billion financial framework designed to provide short-term balance-of-payments support to BRICS members.
  2. The New Development Bank (NDB) was established by BRICS nations under the Fortaleza Declaration.
  3. Special Rupee Vostro Accounts (SRVA) are authorized by the Reserve Bank of India strictly to facilitate trade settlements in US Dollars for partner countries.

Which of the statements given above is/are correct?
(a) 1 and 2 only    (b) 2 and 3 only    (c) 1 and 3 only    (d) 1, 2 and 3

Answer: (a) 1 and 2 only

  • Statement 1 — Correct: The CRA serves as an emergency financial safety net to protect BRICS nations from global liquidity crunches.
  • Statement 2 — Correct: The NDB was established in 2014 following the 6th BRICS Summit in Fortaleza, Brazil.
  • Statement 3 — Incorrect (the trap): Special Rupee Vostro Accounts (SRVA) were specifically created to bypass the US Dollar and allow trade settlement directly in Indian Rupees (INR).
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