The BRICS currency: a long-term possibility

The idea of ​​a BRICS currency as an alternative to the US dollar and other militarized currencies has been the subject of much discussion. The context is geo-economic developments in favor of the BRICS countries, rising geopolitical tensions and the shortage of US dollars in the context of Fed rate hikes.

A number of countries in the South are seeking settlement of payments in local and alternative currencies; this due to the blocking of financial channels, economic sanctions and in order to protect against potential economic threats issued by Western countries. Amid the ongoing BRICS summit in Kazan, Russia; the monetary question is once again at the center of attention.

However, recent remarks by Russian President Vladimir Putin suggest that this initiative is still far from becoming a reality. The diverse economic structures and different monetary, tax, financial and trade policies of the broader BRICS countries pose major challenges.

Indian movements

In this context, let us examine India’s policy stance, initiatives towards internationalization of the rupee, the role of central bank digital currencies and the evolution of digital public infrastructure aimed at exploring a monetary system dynamic, intelligent and sustainable for cross-border trade.

India’s approach to the BRICS currency is cautious and reflects its broader strategic economic orientation. While Russia and China are actively advocating for alternatives to the US dollar, including exploring digital and national currencies within BRICS, India maintains it is not aiming for dedollarization.

Instead, India accepts the merits of the hegemonist theory of stability and accordingly recognizes the importance of the US dollar as a key currency in global trade and finance, ensuring that it remains central in transactions economical when necessary.

Foreign Minister S Jaishankar clarified that India’s efforts are not aimed at replacing the dollar, but rather at addressing practical challenges, such as shortage of foreign exchange from trading partners, overcoming issues of blocking of financial channels, honoring rupee lines of credit and even guarding against associated future challenges. with “militarized” currencies.

Therefore, India is exploring ways to settle payments in rupees where possible, especially with countries facing dollar liquidity issues.

To support this transition, the Reserve Bank of India has taken several initiatives such as opening a special Vostro Rupee account for rupee trade settlements, mitigating foreign exchange risk, reducing transaction costs, l increasing foreign exchange reserves, strengthening bilateral trade and supporting India’s economic diplomacy. .

India also intends to support countries in the South experiencing dollar shortages (Sri Lanka, Maldives, Tanzania, Lesotho) or facing Western sanctions (Venezuela, Russia, Myanmar).

Furthermore, India’s efforts towards a Central Bank Digital Currency (CBDC) aims to overcome all these challenges through a smooth, transparent and real-time payment system. As a result, India is gradually modernizing its financial system and promoting the internationalization of the rupee to reduce transaction costs, accelerate cross-border payments, improve transparency and security, minimize dependence on respect of intermediary banks, increase business efficiency and align with global trends in the digital economy.

In the long term, when the divergent economic, financial, monetary and trade policy issues among the BRICS countries are resolved and the challenges associated with a common currency such as currency volatility, exchange rate differences, structure of the harmonized regulatory framework and governance architecture, monetary sovereignty, issues of If the trust deficit between member states is resolved, we can also have a common BRICS currency.

The way forward

In the short term, we should aim to create a 5R Pay or BRICS Pay, a blockchain-based payment platform, and developing a SWIFT-like financial messaging system are steps towards improving intra-BRICS economic transactions. These initiatives aim to increase the use of local currencies and facilitate secure cross-border payments, gradually building the infrastructure necessary for a more integrated financial system.

Furthermore, to facilitate retail financial transactions, we can explore the “mBRIDGE” project, led by the Bank for International Settlements (BIS) in collaboration with several central banks.

Several countries such as the UAE, China, Iran and Russia already make their payments through mBRIDGE, leveraging the value of digital currencies. India has already explored such a possibility by joining the ASEAN-NEXUS payment settlement system, thereby extending the reach of its famous UPI system.

For India, mBRIDGE represents an opportunity to strengthen the role of the rupee in cross-border transactions, aligning with the broader goal of internationalizing the rupee while reducing dependence on the US dollar.

We can integrate our Unified Payments Interface (UPI) with mBRIDGE member state payment networks, facilitating seamless remittances and cross-border exchanges.

We can also explore the possibility of integrating it with the recently launched BRICS payment card, unveiled at the annual UN summit in New York, as it would further promote tokenized retail payment, promotion of tourism, contacts between people and the democratization of progressive financial integration as envisaged.

This strategy not only accelerates the internationalization efforts of the Indian rupee, but also strengthens economic linkages with an evolving global order, thereby improving the overall resilience and reach of its available financial infrastructure.

In this context, the concept of a BRICS currency remains an ambitious long-term goal rather than an achievable short-term reality. For India, the internationalization of the rupee represents a pragmatic approach to strengthening economic sovereignty while avoiding direct confrontation with the dollar-dominated global system.

Recent efforts, including rupee trade settlements, digital currency initiatives and modernization of financial infrastructure, highlight India’s progressive strategy to strengthen the rupee’s role in international trade.

As BRICS continues to evolve, India’s efforts to internationalize the rupee could complement broader initiatives to create a multipolar global financial system. By focusing on strengthening economic fundamentals, improving the resilience of financial markets and developing secure payment solutions, India can position itself at the forefront of global economic changes, while overcoming challenges associated with a common BRICS currency and the militarization of financial instruments.

Singh is a professor and director and Chaudhary is a research fellow at IIFT New Delhi. The opinions expressed are personal