The ideation of ‘BRICS Pay’ is itself a constructive step toward something new and innovative. It’s a ground-breaking approach, offering a multitude of digital payment options, directly challenging the dollar's hegemony.
By Dr Megha Jain and Vanyaa Gupta
The BRICS nations are supposed to be launching their blockchain-based ‘BRICS Pay’, aiming to challenge the western financial dominance. This system is designed to streamline and secure cross-border transactions, reduce reliance on Western systems, and protect member nations from currency fluctuations and geopolitical tensions. The system is intended to let nations send money across borders using digital platforms run by their central banks.
‘BRICS Pay’ is supposed to be built on blockchain technology and thus ensures cost-effectiveness, transparent transactions, and integration with existing platforms like India’s UPI and Russia’s Mir.
The system is poised for adoption by numerous countries, potentially rivaling SWIFT. If countries start ditching SWIFT, it would mean that the pressure on the US national debt would increase, meaning the US would have to suffer the inflationary consequences of its money printing. However, the system’s global influence depends on its widespread adoption. Without it, ‘BRICS Pay’ may not effectively challenge Western financial power.
Is ‘BRICS Pay’ capable of dethroning SWIFT and consequently, diminishing the dollar's global influence? A pertinent question of relevance. The dollar's status as the global reserve currency has been challenged in recent times. Rising inflation and interest rate hikes have prompted investors to seek alternative currencies. While the dollar still holds its position, the growing US debt raises questions about its long-term dominance.
The ideation of ‘BRICS Pay’ is itself a constructive step toward something new and innovative. It’s a ground-breaking approach, offering a multitude of digital payment options, directly challenging the dollar's hegemony. This decentralized platform has the potential to revolutionize cross-border transactions, fostering greater financial inclusion and sovereignty. However, whether the thought of de-dollarization would be prolific, needs to be watched in the coming time. Not to forget, the US elections also have a role to play in it.
The success of this alternative payment method hinges on mutual trust among its member nations. This trust will be crucial in laying the groundwork for the platform. The key pillar here should be ‘finance’. They say, ‘Money is the king’, which is certainly true! Is India, and other nations, ready to shed some money for building such infrastructure just to support Russian rivalry against the US, especially under these circumstances where the markets are drooping down, the geopolitical tensions are rising, and there could be further turmoil in the future that is yet not factored in?
India has always maintained its maiden stance when it comes to its relations with the West and Russia. However, it’s worth considering active involvement in this venture, being one of the founding members of BRICS as the platform promises to encourage the use of local currencies that shall eventually lead to more liquidity, more prosperity, and probably reduced inflation.
For example, a Chinese exporter can receive payment in Brazilian reals for goods sold to a Brazilian importer. Secondly, eliminating intermediaries can lead to lower transaction costs for businesses and individuals engaged in cross-border trade. Moreover, it can help improve financial inclusion in developing countries by providing access to affordable and efficient payment services.
Additionally, the integration of CBDCs (Central Bank Digital Currency) into ‘BRICS Pay, could be a game-changer. By streamlining cross-border transactions and reducing costs, it would revolutionize the global financial landscape. Most importantly, CBDCs could serve as a powerful tool for financial inclusion, expanding access to financial services for underserved populations. The BRICS nations and central banks must prioritize CBDC integration into ‘BRICS Pay’, unlocking its full potential for economic growth and development.
Having said that, it’s always easier said than done. The success of ‘BRICS Pay’ largely hangs by a thread as it heavily relies on a robust and reliable network infrastructure. This infrastructure serves as the backbone of the payment system, enabling seamless communication and transactions between banks and FIs across the BRICS nations. It’s very important to ensure the key components of the network infrastructure such as Interconnected Banks, each member nation's banks, and FIs must be interconnected to form a unified network.
This involves establishing secure communication channels and protocols for exchanging payment information. Given that BRICS has five member nations currently, then the total number of connections would be N * (N - 1) / 2, where N is the total number of FIs in BRICS. If we consider Indian government FIs only, there are approximately 100 institutions. Proportionately, assuming the same number in each of the BRICS nations, then the total number of connections would be 500 * (500 - 1) / 2 = 124,750 secure connections that need to be established; Data Centres and Servers, a distributed network of data centers and servers is required to process payment transactions, store data and ensure system resilience.
These facilities must be geographically diverse and equipped with high-speed internet connectivity; Security Measures, strong security measures are essential to protect the system from cyber threats and ensure the confidentiality and integrity of transaction data. This includes encryption, firewalls, intrusion detection systems, and regular security audits; Regulatory Compliance, the network infrastructure must comply with relevant regulations and standards,
both domestically and internationally. This ensures that the system operates within legal frameworks and maintains interoperability with other payment systems; Scalability, the infrastructure must be designed to handle increasing transaction volumes and accommodate future growth. This requires a scalable architecture that can be easily expanded and upgraded as needed. Implementation of the above components can pose several challenges including technical complexity, geopolitical factors, and allied costs.
To sum up, a well-developed network infrastructure is fundamental for the success of ‘BRICS Pay’. It provides the foundation for secure, efficient, and reliable cross-border payments, promoting economic cooperation and reducing reliance on Western-dominated financial systems. Here it's important to note that while ‘BRICS Pay’ is a promising initiative, its implementation and widespread adoption will depend on several factors, including technical challenges, geopolitical considerations, and the willingness of member nations to cooperate and coordinate their efforts.
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(Dr Megha Jain is an Assistant Professor at Shyam Lal College, University of Delhi, and a Visiting Fellow at Pahle India Foundation. Er Vanyaa Gupta is a seasoned technocrat in Delhi, India.)
