BRICS to launch digital payment system, reducing dependence on US dollar

New Delhi (The Uttam Hindu) : The growing global solidarity of the BRICS countries has always been a matter of concern for the United States. US President Donald Trump has repeatedly issued sharp statements against this group, led by major countries like India, Russia, and China. This is primarily due to BRICS' efforts to reduce its dependence on the dollar. Now, BRICS countries are moving towards a digital payment system that could directly challenge the dominance of the US dollar.

According to sources, the BRICS countries are working on developing a common digital payment platform that will link the Central Bank Digital Currencies (CBDCs) of India, China, and Russia. This will enable trade between member countries directly in their respective digital currencies.

Focus on a shared system, not a new currency

While speculation about a BRICS common currency has been rife recently, it's now clear that the group is focusing on a shared digital payment system rather than launching a new currency. The aim is to reduce dependence on dollar-based payment systems and international networks like SWIFT. It's worth noting that India is also hosting the BRICS summit this year. Therefore, India's role in shaping this proposal is considered crucial.

According to the report, under the proposed system, India's e-rupee, China's digital yuan, and Russia's digital ruble would be linked through a common technology platform. However, each country would retain full control over its own currency

 The only change would be that mutual trade payments would become simpler, faster, and less costly. Under this arrangement, BRICS countries would neither need dollars for their mutual transactions nor would they have to resort to dollar-based payment channels.

Why India is Playing a Key Role

India is playing a leading role in implementing this model. India believes that interconnecting payment systems is a more practical and sustainable solution than mixing currencies. This is underpinned by India's successful digital payment system, UPI, which has revolutionized digital transactions within the country.

There's also practical experience behind this. During rupee trade with Russia, Russia accumulated large amounts of rupees that it couldn't effectively utilize. Creating a multilateral digital system would avoid such problems.

How will the BRICS Digital Payment System work?

This system will operate on two key technical foundations. The first is the settlement cycle, under which not every transaction will be settled immediately. Only the net difference will be paid by adding up the import and export balances over a set period of time. This will reduce both cash requirements and transaction costs.

The second approach is a forex swap line. This allows a country to temporarily require another country's currency, allowing the respective central banks to maintain balance by mutual agreement.

Why do countries want to reduce their dependence on the dollar?

The search for alternatives to the dollar has been ongoing among BRICS nations for some time. Russia's exclusion from the SWIFT system and the freezing of its approximately $300 billion in foreign reserves has been viewed by many countries as a warning. Similar steps have previously been taken against Iran, North Korea, and Cuba.

In such a situation, this digital payment system of BRICS can emerge as an alternative system, so that the mutual trade of member countries is not affected in case of any global crisis or sanctions.