Relevance for UPSC: GS Paper II (International Relations) & GS Paper III (Economy—External Sector, Financial Systems)

For over five decades, SWIFT—a secure financial messaging network connecting 11,000+ banks—has been the backbone of international payments. BRICS (Brazil, Russia, India, China, South Africa, and new entrants) now seek to reduce dependence on SWIFT and the U.S. dollar by developing their own cross-border payment rails, settlement in local currencies, and a wider financial toolkit (New Development Bank, Contingent Reserve Arrangement). The aim is strategic autonomy: keep trade and finance flowing even under sanctions or geopolitical stress.

What is BRICS building?

• BRICS Cross-Border Payments Initiative (often dubbed “BRICS Pay”): A framework to link domestic fast-payment systems so that retail and SME transactions can move across borders cheaply and instantly.
  
• Domestic instant-payment rails to interlink:
  
  • India’s Unified Payments Interface (UPI)
    
  • Brazil’s Pix
    
  • China’s CIPS (Cross-Border Interbank Payment System; also serves RMB clearing)
    
  • Russia’s SPFS (System for Transfer of Financial Messages; domestic alternative to SWIFT)
    
  • South Africa’s RTC infrastructure
    
• Local-currency settlement: Push for invoicing and paying in rupee, yuan, real, rouble, rand (and in future, new members’ currencies) to cut dollar exposure and FX costs.
  

Why challenge SWIFT?

1. Sanctions risk & resilience: Exclusion from SWIFT disrupts trade finance and correspondent banking. BRICS seeks redundancy so payments continue under pressure.
   
2. Cost & speed: Traditional cross-border payments are slow and fee-heavy. Linking instant-payment rails can make them near-real-time and cheaper.
   
3. De-risking & inclusion: Smaller banks and MSMEs in the Global South face correspondent banking cut-offs. Regional rails can re-open access.
   
4. Strategic currency goals: Especially for China (internationalising the renminbi) and for other BRICS (greater local-currency use in trade).
   

The hard part: messaging vs settlement

• SWIFT is only a messaging layer, not where money actually settles. BRICS must solve both:
  
  • Messaging interoperability (secure, standardised data formats).
    
  • Settlement (how funds finally move)—via central bank accounts, nostro/vostro balances, or real-time gross settlement links.
    
• Liquidity & FX: Local-currency settlement needs deep FX markets, market-makers, and central-bank liquidity lines; otherwise spreads widen and costs rise.
  
• Compliance: Any SWIFT alternative must meet AML/CFT norms, FATF standards, and robust cyber-security.
  
• Network effects: SWIFT’s value is its global coverage. BRICS must convince non-BRICS banks and traders to join their rails.
  

India’s specific play

• UPI internationalisation: Bilateral links and acceptance in partner countries; potential UPI–Pix and UPI–CIPS bridges for small-value trade, tourism, remittances.
  
• Rupee settlement frameworks: Special vostro accounts, trade invoicing in rupees for select partners.
  
• Standards & governance: India can champion open standards, risk management, and regulatory sandboxes so that innovation does not outpace safety.
  

What could a BRICS payment stack look like?

1. Common technical standards for message formats, authentication, dispute resolution.
   
2. A BRICS directory & compliance utility (KYC, sanctions screening, fraud analytics) to reduce duplication and risk.
   
3. Central bank backstops: Swap lines and settlement guarantee funds to provide liquidity during stress.
   
4. Two-tier model:
   
   • Retail layer linking instant-payment systems (UPI, Pix, etc.) for small tickets.
     
   • Wholesale layer linking RTGS/CIPS/SPFS for trade finance, banks, and corporates.
     
5. Gradual dollar-lite trade: Start with energy, commodities, pharma, agro where BRICS trade is large and predictable.
   

Constraints and cautions

• Divergent monetary policies, capital controls, and data-governance rules can slow interoperability.
  
• Some members may prioritise their own platforms (e.g., RMB internationalisation) rather than a neutral BRICS rail.
  
• Without transparent governance, global adoption will be limited.
  

Important terms explained

• SWIFT: A Belgium-based cooperative that standardises secure messages between banks for payments and trade; it does not move money.
  
• CIPS: China’s clearing and settlement system for cross-border RMB payments; also provides messaging.
  
• SPFS: Russia’s financial messaging system developed as a SWIFT fallback.
  
• UPI/Pix: Domestic instant-payment platforms enabling real-time, low-cost transfers; now being linked cross-border.
  
• Correspondent banking: A network where banks hold accounts with one another to settle international payments.
  
• Local-currency settlement: Paying for cross-border trade in domestic currencies, reducing dollar dependence.
  

SDG links: SDG 9 (Industry, Innovation, Infrastructure), SDG 10 (Reduced Inequalities—financial inclusion), SDG 17 (Partnerships).

Key Takeaways

• BRICS is not just replacing SWIFT; it is building parallel rails—messaging + settlement—anchored in local currencies and instant-payment linkages.
  
• Success hinges on interoperability, liquidity backstops, strict compliance, and credible governance that attracts non-BRICS participation.
  
• India can shape the agenda by scaling UPI linkages, championing open standards, and building trusted risk frameworks.
  

One-line wrap

BRICS can dent SWIFT’s dominance only if it marries speed and sovereignty with safety and standards.

UPSC Mains Question

“Critically examine the BRICS effort to reduce reliance on SWIFT through local-currency settlement and alternative payment rails. What opportunities and risks does this create for India’s external sector?”