How BRICS is Challenging SWIFT
Table of Contents
Source: The Hindu
Relevance: GS Paper–II (International Relations); GS Paper–III (Indian Economy — Global Financial Architecture)
Important Key words:
For Prelims:
BRICS Pay, SWIFT Network, New Development Bank (NDB), Contingent Reserve Arrangement (CRA), BRICS Payments Task Force (BPTF)SPFS, CIPS, UPI, Pix Systems
For Mains:
BRICS Pay, Challenges in Implementing BRICS Pay, Swift System and It workingWhy in News?
At the 16th BRICS Summit in Kazan, Russia (October 2024), member nations unveiled the BRICS Cross-Border Payments Initiative — “BRICS Pay”, signalling their intent to reduce dependence on the U.S.-controlled SWIFT network and to strengthen financial sovereignty among emerging economies.
What is the SWIFT System?
- Full Form: Society for Worldwide Interbank Financial Telecommunication
- Established: 1973
- Headquarters: Belgium
- Nature: Secure messaging system, not a money transfer system
- Purpose: Sends payment instructions between banks for international transactions
- Members: Around 11,000 institutions in over 200 countries
- Supervised by: G10 Central Banks and the European Central Bank (ECB)
- Function: Enables fast, standardized, and encrypted financial communication
- Significance: Backbone of global trade and finance
- Issue: Western-controlled; used as a sanction tool (e.g., against Russia, Iran)
How SWIFT system Works
Unique Identification via SWIFT Code
- Every bank connected to SWIFT has a unique code (also called BIC – Bank Identifier Code).
- The code helps identify:
- The bank/institution,
- The country,
- The location or city,
- And optionally, the specific branch.
Message Transmission
- When one bank wants to send money to another (say, Bank A to Bank B), it sends a SWIFT message containing the payment instructions.
- SWIFT ensures this message is securely transmitted to Bank B through its encrypted global network.
Clearing and Settlement
- Once the SWIFT message is validated, the transaction is cleared securely and immediately.
- The actual transfer of funds happens through correspondent banks or central banks, depending on the arrangement.
How BRICS is Challenging SWIFT System?
Why BRICS Wants an Alternative
- Western Control: SWIFT is under G10 central banks, enabling sanction-based financial exclusion.
- Sanction Avoidance: BRICS nations like Russia and Iran seek to bypass Western restrictions.
- Financial Sovereignty: Reducing dependence on the U.S. Dollar and Western systems.
- Strategic Symbolism: Launch of BRICS banknote in 2024 symbolized intent to move beyond dollar dominance.
Origin of BRICS Financial Independence Moves
2014 Fortaleza Summit – Turning point:
- Establishment of New Development Bank (NDB) and Contingent Reserve Arrangement (CRA).
- Aim: To provide financing alternatives for developing countries outside Western-dominated institutions (IMF, World Bank).
Post-2014 (Crimea Sanctions):
- BRICS began promoting national currency usage in intra-group trade.
2017 Agreement:
- Commitment to enhance currency cooperation – through currency swaps, local currency settlements, and direct investments.
2020s:
- Formation of the BRICS Payments Task Force (BPTF) to develop cross-border payment systems.
BRICS Cross-Border Payments Initiative (BRICS Pay)
- Objective: Reduce dependence on SWIFT for international money transfers.
- Aim: Build a parallel financial network enabling secure cross-border payments.
- Introduced at: 2024 Kazan Summit (Russia).
- Focus Areas:
- Strengthen correspondent banking networks within BRICS.
- Promote settlements in local currencies among member nations.
- Reaffirmed in: 2025 Rio Summit Declaration.
- Task Force: BRICS Payments Task Force (BPTF) recognized for progress in developing interoperable payment systems across member countries.
National Payment Systems Supporting BRICS Pay
| Country | System | Features |
| Russia | SPFS (System for Transfer of Financial Messages) | SWIFT analogue created after 2014 Crimea sanctions |
| China | CIPS (Cross-Border Interbank Payment System) | Connects 1,300+ institutions globally; RMB internationalization |
| India | UPI (Unified Payments Interface) | Accepted in 9 countries; aims for global interoperability |
| Brazil | Pix System | Operated by Central Bank; used across Latin America |
Significance of BRICS Pay
- Potential to:
- Create a parallel international payments architecture.
- Reduce dollar dominance in global trade.
- Boost South-South financial cooperation.
- If successful, it could be a game-changer in reshaping global financial governance.
Challenges in Implementing BRICS Pay
Despite its potential to transform global financial systems, BRICS Pay faces several critical challenges:
1. Divergent National Interests
- Each member is expanding its own payment system globally, creating overlapping ambitions:
- India’s UPI is being integrated across Asia and Africa.
- China’s CIPS already operates in 120+ countries.
- Aligning these platforms under one interoperable BRICS framework is politically and technically complex.
2. Technical Interoperability
- The five member nations have different digital infrastructures, cybersecurity policies, and regulatory systems.
- Establishing common standards for security, transaction validation, and compliance remains a major hurdle.
3. Currency Coordination
- BRICS lacks a common currency or settlement unit.
- Without a unified currency mechanism, exchange rate fluctuations between local currencies could complicate smooth settlements.
4. Trust Deficit
- Some members fear China’s dominance, given:
- The internationalisation of the Yuan (RMB), and
- Its inclusion in the IMF’s Special Drawing Rights (SDR) basket.
- Smaller members worry that BRICS Pay may become China-centric rather than a truly multilateral system
5. Regulatory and Political Barriers
- Diverse banking laws, privacy standards, and monetary policies make policy alignment difficult.
- External geopolitical pressure (especially from the U.S. and EU) could discourage smaller economies from full participation.
6. Limited Institutional Mechanism
- BRICS currently lacks a central authority or secretariat to coordinate digital payment integration and dispute resolution.
- This weakens the system’s ability to build trust and ensure accountability
About BRICS Plus
Origin and Evolution
- Concept Origin: Coined by Jim O’Neill (Goldman Sachs, 2001) in “The World Needs Better Economic BRICs.”
- Founding Members: Brazil, Russia, India, China (BRIC).
- Diplomatic Formation: 2006, during G8 Outreach Summit (St. Petersburg, Russia).
- First BRIC Summit: 2009, Yekaterinburg, Russia.
- Expansion:
- 2010: South Africa joined → BRICS (from 2011 Sanya Summit, China).
- 2024: Egypt, Ethiopia, Iran, UAE joined as full members. → Form BRICS Plus
- 2025: Indonesia became a full member.
Current Membership (2025)
- Full Members (11): Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, UAE, Indonesia.
- Partner Countries (10): Vietnam, Belarus, Bolivia, Kazakhstan, Cuba, Malaysia, Nigeria, Thailand, Uganda, Uzbekistan.
Global Significance
- Represents ~49.5% of world population, ~40% of global GDP, and ~26% of world trade.
- Serves as a platform for emerging economies to coordinate on economic, political, and developmental issues.
- Symbolizes South–South cooperation and the shift toward a multipolar global order.
Institutional Framework
- Permanent Institutions:
- New Development Bank (NDB) — HQ: Shanghai, China.
- Contingent Reserve Arrangement (CRA).
- Engagement Mechanisms:
- Political and Security Cooperation
- Economic and Financial Cooperation
- People-to-People and Cultural Exchan
UPSC PYQ
Q. Consider the following statements with regard to BRICS: (UPSC/2025)
I. The 16th BRICS Summit was held under the Chairmanship of Russia in Kazan.
II. Indonesia has become a full member of BRICS.
III. The theme of the 16th BRICS Summit was “Strengthening Multiculturalism for Just Global Development and Security.”
Which of the statements given above is/are correct?
(a) I and II
(b) II and III
(c) I and III
(d) I only
CARE MCQ
Q. Consider the following statements regarding BRICS Pay:
- It aims to reduce dependence on the SWIFT network controlled by G-10 central banks.
- The BRICS Payments Task Force works to make members’ payment systems interoperable.
- SPFS, CIPS, UPI, and Pix form the core infrastructure for BRICS Pay.
- Iran’s inclusion in 2024 strengthened BRICS’ push for financial sovereignty.
How many of the above statements are correct?
(a) Only two
(b) Only three
(c) All four
(d) Only one
Correct Answer: (c) All four
