BRICS and SWIFT System
Context:
The BRICS grouping (Brazil, Russia, India, China, and South Africa) is intensifying efforts to challenge the dominance of the U.S.-led SWIFT financial messaging system by developing an alternative payment mechanism called BRICS Pay.
UPSC Relevance:
International Relation and Economy
UPSC PYQ:
Q. Consider the following statements: (2016)
- New Development Bank has been set up by APEC.
- The headquarters of the New Development Bank is in Shanghai.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans: (b)
Q. The ‘Fortaleza Declaration’, recently in the news, is related to the affairs of (2015)
(a) ASEAN
(b) BRICS
(c) OECD
(d) WTO
About BRICS:
- BRICS started in 2001 as BRIC (Brazil, Russia, India, and China). South Africa was added in 2010. The acronym ‘BRIC’ was coined by economist Jim O’Neill in 2001.
- Founding countries: Brazil, Russia, India, and China.
- Aim: nations’ economies would come to collectively dominate global growth by 2050.
- First summit: Held in 2009 in Yekaterinburg, Russia
- South Africa joined BRIC in 2010, transforming BRIC to BRICS.
BRICS Summits:
BRICS Members:
A further expansion of BRICS took place in 2024 with Egypt; Ethiopia; Iran;and UAE becoming full members of BRICS from 1 January 2024. InJanuary2025, Indonesia joined the BRICS as a full member.
- BRICS brings together ten major emerging economies of the world, representing around 49.5 % of the global population, around 40%of the global GDP and around 26% of global trade.
Areas: Trade, Finance, Health, Education, Science & Technology, Agriculture, Environment, Energy, Labour, Disaster Management, Anti-Corruption, Anti-Drugs, etc.
4th and 13th BRICS Summit: India chair these two BRICS Summits
The term “Fortaleza Declaration” can refer to two different significant agreements: one from the 2014 BRICS Summit, which established the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), and a more recent one from the 2024 Global Education Meeting (GEM) in Fortaleza, Brazil, which is a roadmap for educational reform.
Why BRICS avoid SWIFT System:
- The push gained momentum after the Western sanctions on Russia over its actions in Ukraine, which restricted Russia’s access to the SWIFT network.
- The 16th BRICS Summit (Kazan, Russia, October 2024) witnessed major discussions on creating a BRICS Payments System (BRICS Pay) to settle cross-border transactions in local currencies rather than U.S. dollars.
- This marks a significant step towards establishing a parallel financial infrastructure independent of Western control.
About Swift System:
- SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global network enabling secure cross-border financial transactions between over 11,000 banks and institutions in 200+ countries.
- It does not transfer money but sends standardized financial messages to facilitate global trade and payments.
- Dominated by Western powers, particularly the U.S. and EU, SWIFT is often used as a tool for economic sanctions.
- It was established in 1973 and is based in Belgium.
- It is controlled by the central banks of the G10countries, the European Central Bank, and the National Bank of Belgium.
- The Group of Ten is made up of eleven industrial countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States) which consult and co-operate on economic, monetary and financial matters.
- It has the eight-character SWIFT code.