What is BRICS Pay and why does it matter?

BRICS Pay Explained

BRICS Pay is a payment system initiative developed by the BRICS nations (Brazil, Russia, India, China and South Africa) to facilitate cross-border transactions among these countries. 

Its primary objective is to bypass traditional financial infrastructures, particularly those dominated by the United States dollar and Western financial institutions, thereby promoting financial independence within the bloc. 

The initiative is part of the broader goal of reducing reliance on existing financial systems, such as SWIFT, which are susceptible to sanctions and influence from Western countries.

The combined GDP of the BRICS nations was over $26 trillion in 2024, comprising about 36.7% of the global economy. This means that if BRICS Pay becomes fully embedded across these economies, it has the potential to fundamentally shift global trade dynamics, reducing the need for intermediary currencies and lowering costs associated with currency conversion and dollar-based transactions.

The political and economic roots of BRICS Pay

The motivation behind BRICS Pay has both economic and political roots, and it all circles back to the dominance of the US dollar. 

For decades, the US dollar has been the world’s primary reserve currency, which means most international trade and finance relies on it. This dominance gives the US an extraordinary influence over global financial transactions. It also means that other countries can be vulnerable to sanctions or economic policies that might not align with their own interests.

For BRICS countries, reliance on the dollar has become a double-edged sword. Economically, they’re major players with growing influence, but they’re still tied into a system where the dollar acts as the linchpin. 

If the US decides to impose sanctions, as it has with Russia in recent years, it can restrict access to international financial systems like SWIFT and freeze dollar transactions. This puts countries at risk of economic disruptions and limits their financial autonomy.

BRICS Pay isn’t just a payment system; it’s a way to sidestep these risks. By creating a direct payment channel where local currencies can be used instead of relying on the dollar, these countries seek greater control over their transactions and reduce exposure to the shifting tides of US economic policies. 

In a sense, it’s about creating an economic “plan B.” If BRICS countries can trade directly with each other and settle payments in their own currencies, they will lessen their reliance on the dollar and build a more self-sustaining financial ecosystem.

Politically, it sends a clear message. By developing BRICS Pay, these countries are collectively saying they don’t want their economic stability at the mercy of another nation’s policies. So they’re pushing toward a more multipolar financial world that’s not so US-centric and offers alternative paths for trade and commerce. This move is about flexibility, sovereignty and reducing the political leverage that one country can hold over others.

With that background in mind, let’s dive into the features of BRICS Pay and how it’s set to make this vision a reality.

Key features of BRICS Pay

BRICS Pay aims to create a unified digital payment platform that can operate across different countries within the bloc. This would enable users to make payments directly in local currencies, reducing the need for currency conversions and offering a seamless cross-border payment experience.

BRICS Pay leverages digital wallet technology, QR code-based payments and interoperability frameworks that allow users to link directly with their local banks. 

While specifics on underlying infrastructure are still evolving, it’s expected to employ secure transaction protocols and use blockchain elements or digital ledger technologies to ensure transparency and minimize transaction costs across borders.

One speculation involves the use of Ripple’s XRP (XRP). Factors like regulatory clarity, robust security measures and technological readiness will play crucial roles in determining whether XRP can achieve widespread adoption within the financial systems of BRICS countries.

Here are the key features of BRICS Pay:

• Digital wallet access: Users can access BRICS Pay via a digital wallet that may be linked to their domestic bank accounts, enabling easy management of funds.
• Payment methods: The wallet supports payments through QR codes and other digital methods, streamlining international transactions and mimicking the convenience of traditional digital payment platforms.
• Local currency transactions: BRICS Pay facilitates direct transactions in the member nations’ local currencies, eliminating the need for the US dollar and reducing foreign exchange risks.
• Economic reinforcement: By promoting the use of domestic currencies, BRICS Pay aims to strengthen local economies and enhance currency independence.
• Cost and efficiency benefits: The system is designed for direct currency swaps within BRICS economies, potentially resulting in lower transaction fees and faster settlement times compared to conventional banking systems.

Potential advantages of BRICS Pay

The platform allows BRICS countries to operate more independently of Western-dominated financial systems, mitigating the impact of economic sanctions and fostering stronger economic ties within the bloc.

It encourages using local currencies for international transactions, supporting BRICS members’ efforts to strengthen their currencies and diversify away from the US dollar. BRICS Pay could enhance trade between member countries by simplifying payment processes, making cross-border commerce more accessible and attractive.

In 2023, digital payment volumes within the BRICS economies were significant, reaching about $3.25 trillion. This volume highlights the substantial growth of digital transactions across these countries, with a year-on-year increase of 26.1%. Projections suggest this market could expand to about $39.3 trillion by 2032, with China expected to contribute almost half of the spending. 

This rapid growth illustrates the scale of digital transformation within the BRICS, laying a strong foundation for the adoption of systems like BRICS Pay to support seamless intra-bloc transactions.

Challenges to address for successful implementation of BRICS Pay

The BRICS Pay initiative faces challenges related to varying financial systems, national interests and currency volatility, but its success could pave the way for similar systems and a multipolar financial world.

Each of these BRICS countries has distinct financial systems and regulatory standards, which could complicate the seamless integration required for BRICS Pay. 

Still, most of them have been experimenting with Central Bank Digital Currencies (CBDCs) for several years. So some interoperability and standardization challenges would be expected by those in charge of making this happen.

Diverging national interests and regional tensions might affect cooperation and the smooth implementation of BRICS Pay. Political and macro economic tensions are certainly a factor. Still, India and China have made progress on their border issues, thanks to constant dialogues in a BRICS context.

BRICS currencies can be volatile, posing risks in transactions without a stabilizing mechanism like the US dollar.

The success of BRICS Pay could encourage other countries outside the bloc to adopt or integrate similar systems, paving the way for a multipolar financial world. As digital currencies and blockchain technology evolve, BRICS Pay may incorporate these innovations to further enhance its functionality and global reach.