Trade between BRICS countries shows marked increase

Why in News? 

India will host the 18th BRICS Summit in New Delhi on September 12-13, 2026, with financial cooperation, cross-border payments and expansion of intra-BRICS trade among the key areas of discussion. This has renewed the debate over greater use of national currencies and reducing excessive dependence on the U.S. dollar.

About BRICS: 

• BRICS is an informal intergovernmental grouping of major emerging economies and developing countries that seeks to strengthen economic cooperation, reform global governance and enhance the voice of the Global South.
• 11 Members: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, the UAE, Saudi Arabia and Indonesia.
• BRICS is neither a treaty-based organisation nor a formal economic or military alliance. It has no permanent secretariat, common market or common economic policy. Cooperation takes place through annual summits, ministerial meetings and specialised working groups.
• BRICS has no free-trade agreement or customs union, and intra-BRICS trade remains significantly influenced by China’s large economic weight.

Growing Economic and Trade Significance

• Large economic footprint: India’s official BRICS 2026 platform estimates that the grouping accounts for around 49.5% of the global population, 40% of global GDP in PPP terms and 26% of global trade.
• Growing intra-BRICS trade: UNCTAD data show that intra-BRICS merchandise trade increased more than thirteenfold, from about $84 billion in 2003 to $1.17 trillion in 2024.
• Rising share of global exports: The BRICS economies together account for roughly one-fourth of global merchandise exports, highlighting their growing weight in world trade.
• Complementary economic structures: BRICS brings together major energy producers such as Russia, Iran and the Gulf economies; large energy consumers such as India and China; agricultural exporters such as Brazil; and major manufacturing and mineral economies.
• Uneven interdependence: Growth of intra-BRICS trade does not imply equal dependence among members. Countries differ considerably in their reliance on BRICS markets, while China’s highly diversified global export base gives it relatively lower dependence on intra-BRICS markets.

Why greater use of National Currencies?

Growing intra-BRICS trade creates a need for efficient and affordable cross-border payments.

Currently, international payments often pass through correspondent banks and intermediary institutions. Where direct banking relationships are absent, transactions may involve conversion through a major international currency such as the dollar.

This can lead to:

• Higher transaction costs due to intermediary fees and foreign-exchange margins.
• Longer settlement times because payments pass through multiple institutions.
• Exchange-rate risk for businesses dealing in foreign currencies.
• Greater vulnerability to financial restrictions, particularly when transactions depend on financial infrastructure outside the participating countries.

Greater use of national currencies and interoperable payment systems can therefore reduce transaction costs and diversify financial channels.

Russia as a Catalyst: 

• Russia’s experience following the 2022 Ukraine conflict highlighted the geopolitical vulnerability associated with dependence on existing international financial channels. 
• Restrictions on Russian banks and their access to international financial messaging and payment networks encouraged Russia and other BRICS members to explore alternative mechanisms.

However, BRICS’ objective should not be equated with an immediate replacement of the dollar. The more realistic goal is payment and currency diversification.

Emerging BRICS Initiatives: 

1. BRICS Cross-Border Payments Initiative: The BRICS Cross-Border Payments Initiative (BCBPI) seeks to make cross-border payments faster, cheaper, more accessible, efficient, transparent and secure. BRICS countries are examining greater interoperability among their payment systems. It remains an ongoing cooperation framework rather than a fully operational common BRICS payment network.
2. Rupee-based International Trade Settlement: India has promoted international use of the rupee through Special Rupee Vostro Accounts (SRVAs). They allow authorised banks in partner countries to maintain rupee accounts with Indian banks for settling international trade. This can facilitate direct rupee-based settlement and reduce dependence on third-country currencies, where commercially viable.
3. India-UAE Cooperation: India and the UAE have developed mechanisms for rupee-dirham trade settlement and cooperation on payment and messaging systems, providing a practical example of bilateral financial connectivity.
4. New Development Bank: The New Development Bank (NDB) provides BRICS with an important avenue for development financing. Its strategy has encouraged greater local-currency financing, which can reduce currency mismatch for developing countries borrowing for domestic infrastructure projects.

Why is Replacing the Dollar Difficult?

Despite BRICS’ growing economic weight, creating a genuine alternative to the dollar faces major challenges.

• Economic and political diversity: BRICS members have different economic structures, monetary policies, exchange-rate regimes and geopolitical interests, making common financial policies difficult.
• China’s dominance: A substantial proportion of intra-BRICS trade involves China. Excessive reliance on the renminbi could merely replace dependence on one dominant currency with dependence on another.
• Limited currency convertibility and liquidity: Most BRICS currencies do not possess the global liquidity, convertibility and deep financial markets associated with the dollar.
• Absence of common economic institutions: BRICS lacks a customs union, common market and common monetary policy, making deeper financial integration difficult.
• Trust and interoperability: Cross-border payment systems require common standards for KYC, AML/CFT, cybersecurity, data protection and settlement.
• Structural strength of the dollar: Dollar dominance is supported by the size and liquidity of U.S. financial markets, its widespread use in trade and finance, and strong network effects. An alternative payment mechanism alone cannot displace these structural advantages.

Way Forward: 

India should pursue pragmatic financial diversification rather than an ideological campaign against the dollar.

• BRICS should develop interoperable payment systems with common standards for cybersecurity, KYC and AML/CFT.
• India should expand rupee-based trade settlement where market conditions make it economically viable.
• BRICS should strengthen local-currency financing through the NDB.
• The grouping should create multiple bilateral and multilateral payment corridors, rather than becoming dependent on any single member’s financial system.
• Greater financial integration should be accompanied by trade facilitation and reduction of non-tariff barriers.
• India should maintain access to the existing dollar-based global financial system while simultaneously developing alternative channels, consistent with its policy of strategic autonomy.

The rise in intra-BRICS trade creates a strong economic rationale for cheaper, faster and more resilient cross-border payment mechanisms. However, the economic size of BRICS alone cannot displace dollar dominance, which rests on deep financial markets, liquidity, convertibility and global confidence.

The more realistic near-term outcome is therefore selective de-dollarisation and greater currency diversification, rather than the emergence of a single BRICS currency or an immediate replacement of the dollar.

Mains Practice Question: 

Q. “Growing intra-BRICS trade creates opportunities for local-currency settlement, but economic size alone cannot displace dollar dominance.” Discuss, highlighting India’s interests.