With India chairing BRICS and the 18th summit approaching in New Delhi, member countries are discussing ways to reduce the cost and time of cross-border payments.
Recent discussions include links among domestic payment systems and possible CBDC -based settlement arrangements.
India has framed its approach around practical efficiency for trade and tourism, avoiding an explicit de-dollarisation narrative.
TOPDATA & FACTS
Cross-border payments often move through correspondent banks rather than directly between the payer’s and recipient’s banks.
Each intermediary can add fees, compliance checks and processing time.
Currency conversion may involve a vehicle currency such as the US dollar.
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication.
SWIFT is a Belgium-based cooperative providing secure financial messaging.
It connects more than 11,000 institutions across over 200 countries according to current reporting.
A 2019BRICS survey cited forex margins of about 2.5% for Brazilian respondents generally and higher costs for some Africa-related payments.
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BIS data cited in current analysis showed active correspondent banking relationships fell by about 20% between 2011 and 2018.
India and Singapore already link UPI and PayNow for cross-border remittances.
Project Nexus seeks to connect multiple national instant-payment systems through a shared model.
Project Nexus is BIS -linked and is not a BRICS project.
CBDCs are digital forms of central-bank money and can be designed for retail or wholesale use.
Payment-versus-payment settlement can reduce principal risk by ensuring both currency legs settle together.
mBridge has explored multi- CBDC cross-border settlement.
The 2024 Kazan Declaration discussed studying a BRICS settlement system, while India’s current position remains focused on cost and speed.
For Prelims, remember the institution, location, year, legal mechanism and numerical data associated with the development.
For Mains, connect the immediate event with the underlying institutional challenge, competing objectives and implementation safeguards.
Avoid treating a proposal, court observation, scientific inference or reported estimate as a final settled outcome unless the competent authority has formally adopted it.
HISTORICAL PERSPECTIVE
International payments historically relied on correspondent banking because banks in different jurisdictions lacked direct accounts and common infrastructure.
The post-war dollar-centred financial system gave the US currency a major role in trade invoicing, reserves and settlement.
SWIFT later standardised secure cross-border financial messaging and became deeply embedded in banking operations.
The rise of instant domestic payment systems such as UPI showed that retail payments can be fast and inexpensive within national borders.
The next policy challenge is interoperability across borders without weakening anti-money-laundering safeguards, monetary sovereignty or financial stability.
For UPSC, the historical value of this development lies in tracing how institutions evolve when technology, law and public expectations change.
A useful analytical distinction is between continuity of the underlying objective and change in the instruments used to achieve it.
Institutional reform is usually incremental: new mechanisms are layered over older legal and administrative structures rather than replacing them overnight.
ECONOMIC PERSPECTIVE
Lower cross-border payment costs can directly benefit exporters, importers, migrants, tourists and small firms.
Fewer intermediaries can reduce fees and settlement delays, improving working-capital efficiency.
CBDC -based settlement may reduce counterparty and principal risk if designed with simultaneous exchange.
However, fragmented rival systems could increase compliance complexity and liquidity needs.
Network effects are crucial: a technically sound platform has little value unless enough banks, central banks and users participate.
India’s efficiency-first approach seeks practical gains while limiting geopolitical and currency risks.
Public policy should distinguish gross activity from net welfare: scale alone is not proof of efficiency, inclusion or resilience.
Transaction costs, information asymmetry, externalities and distributional effects are useful economic lenses for evaluating the development.
Long-term gains depend on institutional credibility because uncertainty raises compliance, financing and coordination costs.
GEOGRAPHICAL PERSPECTIVE
Cross-border payment architecture reflects trade geography and banking connectivity.
Countries with weak correspondent-bank links often face higher costs, especially in parts of Africa and smaller emerging markets.
BRICS expansion increases the diversity of currencies, regulatory systems and payment infrastructures that any common arrangement must connect.
India’s position between major trade corridors in Asia, the Gulf and Africa makes interoperable payments strategically relevant.
digital links can reduce geographic friction but do not eliminate differences in time zones, capital controls, sanctions regimes and domestic law.
Spatial variation matters because the same policy or process can produce different outcomes across regions with different infrastructure, ecology and access.
Mapping flows, nodes, corridors and clusters helps connect current affairs with core geography concepts.
For answer writing, location should be linked to process rather than treated as a stand-alone map fact.
ENVIRONMENTAL PERSPECTIVE
digital settlement has no major direct ecological objective, but efficient payment rails can reduce some paper-based and branch-based processes.
Data centres and distributed financial infrastructure consume energy and require resilient hardware.
Green-finance transactions can also benefit from cheaper international settlement.
Environmental claims should not be attached to digital payments without lifecycle evidence.
The main sustainability contribution is indirect through efficient financial infrastructure.
Environmental assessment should distinguish direct impacts from indirect and lifecycle impacts.
Resilience requires monitoring over time because short-term output indicators can miss cumulative ecological stress.
Where environmental relevance is limited, it is better to state that limitation than manufacture an artificial linkage.
SOCIAL PERSPECTIVE
Cheaper remittances can increase the share of migrant earnings reaching households.
Interoperability can benefit students, tourists and small merchants who otherwise face high foreign-exchange charges.
digital exclusion remains a concern where users lack smartphones, bank accounts or digital literacy.
Cross-border systems must provide consumer protection, dispute resolution and transparent exchange rates.
Privacy safeguards are especially important if CBDCs create more granular transaction data.
Distribution matters: reforms can affect groups differently depending on income, gender, geography, digital access and institutional power.
Trust improves when citizens understand procedures, can challenge errors and can access grievance-redress mechanisms.
Inclusion should be measured through actual outcomes rather than symbolic participation alone.
POLITICAL / GOVERNANCE PERSPECTIVE
RBI and other central banks must retain control over monetary and financial-stability implications.
Cross-border interoperability requires common technical standards, identity rules and anti-money-laundering cooperation.
Sanctions exposure makes the geopolitical design of alternative payment systems sensitive.
India’s stated focus on efficiency rather than replacing the dollar preserves strategic flexibility.
Any BRICS arrangement should be interoperable with, rather than automatically isolated from, the wider global financial system.
Good governance requires a clear allocation of responsibility, transparent rules, auditability and accessible accountability mechanisms.
Technology should support constitutional and statutory objectives rather than become a substitute for institutional judgment.
Evidence-based evaluation is essential before scaling a reform nationally.
PROS
Can reduce transaction costs and settlement delays.
May improve trade and tourism payments.
Could reduce dependence on long correspondent-banking chains.
CBDCs can enable atomic or simultaneous settlement.
Strengthens innovation in global payment infrastructure.
Can expand India’s digital-public-infrastructure influence.
CONS
Interoperability across many currencies is technically complex.
Sanctions and geopolitical tensions can affect participation.
CBDCs raise privacy and cybersecurity questions.
Fragmentation could create parallel systems with poor network effects.
Foreign-exchange liquidity remains necessary.
Alternative rails do not automatically remove currency risk.
WAYFORWARD
Prioritise interoperable standards over geopolitical branding.
Pilot high-volume trade and tourism corridors first.
Ensure AML/CFT compliance and strong identity safeguards.
Build transparent foreign-exchange pricing.
Use privacy-preserving CBDC design.
Maintain compatibility with existing global systems.
Create clear dispute-resolution mechanisms.
Evaluate cost savings with real transaction data before scaling.
Use a measurable implementation framework: identify the responsible institution, baseline conditions, intended outcome, public data needed for evaluation, foreseeable risks and a periodic review mechanism. This converts a current-affairs fact into an exam-ready governance analysis without overstating what the latest development has already achieved.
Use a measurable implementation framework: identify the responsible institution, baseline conditions, intended outcome, public data needed for evaluation, foreseeable risks and a periodic review mechanism. This converts a current-affairs fact into an exam-ready governance analysis without overstating what the latest development has already achieved.
Use a measurable implementation framework: identify the responsible institution, baseline conditions, intended outcome, public data needed for evaluation, foreseeable risks and a periodic review mechanism. This converts a current-affairs fact into an exam-ready governance analysis without overstating what the latest development has already achieved.
Use a measurable implementation framework: identify the responsible institution, baseline conditions, intended outcome, public data needed for evaluation, foreseeable risks and a periodic review mechanism. This converts a current-affairs fact into an exam-ready governance analysis without overstating what the latest development has already achieved.
QUICKREVISION
Ahead of the 18th BRICS Summit in New Delhi, members are discussing cheaper and faster cross-border payment mechanisms.
India’s emphasis is on efficiency in trade and tourism payments rather than presenting the initiative as a replacement for the US dollar.
Options include linking national instant-payment systems and connecting central bank digital currencies.
Traditional correspondent banking can involve multiple intermediaries, repeated currency conversion, fees and settlement delays.
SWIFT is primarily a secure financial messaging network; it does not itself function as a global currency.
Project Nexus is a BIS -linked multi-country payment-connectivity model and is not a BRICS initiative.
SWIFT is principally a secure financial messaging network.
Project Nexus is a BRICS -created settlement system.
India has linked UPI with Singapore’s PayNow.
Correct answer: 1 and 3 only.
PROBABLE DESCRIPTIVE QUESTION
India has framed BRICS cross-border payment reform as an efficiency project rather than a de-dollarisation project. Analyse the economic and strategic logic of this approach.
