Stratfor: The implications of an independent BRICS Payment System

In recent years, the United States has increasingly leveraged the global dominance of its currency and financial system as tools of foreign policy and geopolitical pressure — a practice critics call "weaponizing" the dollar. By imposing strict financial sanctions, restricting access to dollar-denominated trade and taking the historic step of freezing billions of dollars in Russian central bank reserves, Washington demonstrated that foreign dollar assets can be functionally confiscated or rendered unusable overnight.

BRICS nations' push to develop an independent payment system will not immediately undermine the U.S. dollar's global dominance, though it could reduce the effectiveness of U.S. financial sanctions, Stratfor writes.

BRICS countries are working to reduce their dependence on the U.S. dollar and to make themselves less vulnerable to U.S. financial sanctions. At the 2024 BRICS summit, the member states agreed to pursue policies to reduce their reliance on the dollar by building cross-border payment infrastructure and promoting local-currency settlement. Being the target of wide-ranging Western financial sanctions, Russia has for years been pushing for de-dollarization, but more recently, other countries like China and India have also been keen to reduce their dependence on the dollar.

The proposed BRICS monetary and payments regime is intended to establish a clearing and settlement infrastructure that enables BRICS and other participating countries to conduct trade in their central bank digital currencies (CBDCs). The BRICS agreed to establish an infrastructure and payments regime that interconnects national central bank digital currencies to bypass the U.S.-dollar-dominated international financial system. This would allow an exporter in a BRICS country to be paid directly by an importer from another BRICS country using their respective CBDCs, thereby eliminating the need for the dollar as a vehicle currency. Such a regime would also make it difficult for the U.S. government to track payments between BRICS countries. However, the proposal has left some important issues unanswered. For one, the regime, whether operated bilaterally or on a "plurilateral" basis, would likely lead to imbalances, such as China running bilateral and aggregate surpluses vis-a-vis the other BRICS countries.

Additionally, the resolution of accumulated credit balances remains uncertain. For instance, if Russia maintains a structural surplus with India, it will continue to accumulate rupee-denominated claims. However, converting these balances into other currencies will be challenging, if not completely impossible, due to India's strict capital controls. Given capital account restrictions, especially in China and India, it would be difficult to convert excess balances into third-party currencies. While establishing a multilateral clearing house would somewhat help alleviate this issue by netting outstanding balances between all participating countries, it would not resolve it as long as one or more countries run an aggregate surplus or deficit vis-a-vis all other BRIC countries.

The BRICS infrastructure would be built on three core components: BRICS Pay, a decentralized financial messaging network designed to replace SWIFT; CBDC Interconnection and BRICS Bridge, which link BRICS central banks to trade directly in CBDCs; and BRICS Clear, a platform leveraging blockchain and decentralized finance for trading and settling financial instruments as an alternative to clearing houses like Euroclear and Clearstream.

Even the partial establishment of a payments regime would enable BRICS to continue conducting trade among themselves in the event of large-scale U.S. financial sanctions. By separating clearing and settlement functions from U.S. banking structures and infrastructure, a cross-border payments mechanism would ensure that financial transactions between BRICS countries are less directly exposed to U.S. sanctions. This is because reduced access to trade-related transaction data would make it more difficult — though not impossible — for the U.S. Treasury to identify and impose targeted financial restrictions. While participating financial entities could still face U.S. sanctions, such measures would also be less immediately effective, since the payments infrastructure would be further removed from the reach of U.S. authorities compared to traditional channels, such as the U.S. banking system or even Europe-based financial systems like SWIFT or Euroclear.

BRICS nations may still hesitate to defy U.S. sanctions, particularly those with financial institutions that depend on continued access to dollar clearing and U.S. capital markets. However, establishing a payments infrastructure that bypasses the dollar would nonetheless increase their capacity to resist or disregard U.S. financial pressure when their strategic interests so require.

Efforts to advance the payments system will expose BRICS countries to U.S. tariff threats in the coming months, as Washington fears such currency cooperation could eventually erode its financial leverage. The administration of U.S. President Donald Trump has warned BRICS members against efforts to circumvent the dollar, threatening to impose 100% tariffs on imports from countries that actively pursue "de-dollarization," presumably referring to participation in the proposed BRICS payments regime.

Washington has singled out Brazil, whose central bank operates the Pix instant payment system and has been exploring ways to connect it to international payment networks. While neither the proposed BRICS payments regime nor Brazil's efforts to internationalize Pix pose an imminent threat to the dollar's dominant international role, they could reduce Washington's ability to impose financial sanctions on participating countries, thereby diminishing U.S. financial leverage. Indeed, over the longer term, the expansion of alternative networks could gradually increase competitive pressure on the dollar and diminish the deterrent impact of U.S. financial coercion.

read more in our Telegram-channel https://t.me/The_International_Affairs