POWER Framework
Ahead of the 18th BRICS Summit in New Delhi under India’s chairmanship, finance ministries and central banks of BRICS countries met in Jaipur to discuss financial cooperation, local currency settlements and alternative cross-border payment mechanisms.
The discussions gained importance following proposals such as China’s five-point “POWER” framework, which emphasises strengthening cooperation among developing countries and enhancing the role of BRICS in representing the interests of the Global South
Significance of BRICS Alternative Payment Systems
Reducing Dependence on Traditional Financial Networks
BRICS countries are exploring alternative payment mechanisms to reduce excessive dependence on existing global financial infrastructure dominated by major currencies and institutions.
- Local currency settlements can reduce reliance on the US dollar for bilateral trade.
- Alternative platforms can provide greater flexibility to developing economies facing high transaction costs.
- It can reduce vulnerability arising from geopolitical tensions and financial restrictions.
Example: Exclusion of some Russian banks from the SWIFT network in 2022 highlighted the strategic importance of independent payment mechanisms.
Promoting Financial Inclusion in the Global South
Many developing countries face challenges such as expensive remittance channels, limited banking connectivity and dependence on intermediary institutions.
Alternative systems based on:
- Digital payments
- Central Bank Digital Currencies (CBDCs)
- Instant payment networks
can improve access to affordable and faster financial services.
India’s UPI model demonstrates how interoperable digital public infrastructure can transform domestic and cross-border payments.
Lowering Trade and Transaction Costs
Traditional cross-border payments involve multiple intermediaries, currency conversions and settlement delays.
BRICS payment mechanisms can:
- Reduce forex conversion costs
- Enable faster settlement
- Support MSMEs engaged in international trade
- Improve efficiency of supply chains
This is particularly important for developing economies seeking deeper South-South cooperation.
Strengthening Multipolarity in Global Finance
A diversified global payment ecosystem can contribute to a more balanced international financial order.
BRICS countries argue that:
- Global financial systems should be more inclusive.
- Developing countries should have greater representation in financial governance.
- Payment infrastructure should not become a tool of geopolitical pressure.
Enhancing Digital Economy Cooperation
Alternative payment systems can promote cooperation in:
- Digital trade
- E-commerce
- Tourism payments
- Cross-border remittances
- Digital currencies
This aligns with the broader transformation towards a technology-driven global economy.
Concerns Associated with BRICS Alternative Payment Systems
Risk of Fragmentation of Global Financial System
Creating separate payment ecosystems may lead to fragmentation rather than cooperation.
- Multiple competing systems can increase complexity.
- Businesses may face difficulties operating across different financial networks.
- Global interoperability may reduce.
Chinese Dominance Concerns
While reducing dependence on the US dollar is an objective, excessive dependence on another major currency may create new vulnerabilities.
- China has a dominant position in several BRICS financial initiatives.
- Wider adoption of the digital yuan may increase Beijing’s influence over payment infrastructure.
For India, strategic autonomy requires a neutral and balanced system.
Geopolitical Differences Among BRICS Members
BRICS is a diverse grouping with countries having different strategic interests.
- Russia views alternatives as a tool for reducing sanctions impact.
- India focuses more on efficiency, innovation and financial inclusion.
- Other members have varying levels of economic integration.
Achieving consensus on a common payment architecture may therefore be challenging.
Regulatory and Institutional Challenges
Countries differ in:
- Data protection laws
- Capital controls
- Anti-money laundering regulations
- Currency management policies
Harmonising these frameworks will require significant institutional coordination.
Cybersecurity and Financial Stability Risks
Digital payment networks and CBDCs create new risks:
- Cyberattacks on financial infrastructure
- Data security concerns
- Possibility of rapid capital outflows
- Operational failures in interconnected systems
Strong cybersecurity frameworks will be essential.
Way Forward
Focus on Interoperability Rather Than Replacement
BRICS should develop systems that complement existing global networks rather than create isolated alternatives.
- Ensure compatibility with SWIFT, IMF and BIS frameworks.
- Promote open technical standards.
Adopt a Gradual and Sector-Specific Approach
Instead of immediately creating a common payment system, BRICS should begin with:
- Bilateral trade settlements
- Tourism payments
- Remittance corridors
- MSME transactions
Successful pilots can later be expanded.
Strengthen Digital Public Infrastructure
Countries should invest in:
- Secure CBDC platforms
- Real-time payment systems
- Digital identity infrastructure
- Cybersecurity mechanisms
India’s UPI experience can serve as a model for scalable digital payment architecture.
Develop Common Regulatory Standards
BRICS countries should work towards:
- Harmonised AML/CFT standards
- Data-sharing protocols
- Consumer protection mechanisms
- Cybersecurity cooperation
This will improve trust among participating economies.
Ensure Neutral Governance
The success of BRICS payment systems depends on institutional neutrality.
The system should avoid:
- Dollar dependency
- Yuan dominance
- Political control by any single country
A transparent governance structure involving all members will enhance credibility.
Conclusion
BRICS alternative payment systems represent an important step towards creating a more inclusive and resilient global financial architecture. They can reduce transaction costs, promote digital financial inclusion and strengthen economic cooperation among developing countries.
However, the objective should not be replacing one dominant financial system with another. The future of global payments lies in secure, interoperable, transparent and technology-driven systems that provide greater choice while maintaining global financial stability.
FAQs: BRICS Alternative Payment Systems and POWER Framework
What is the POWER framework proposed in BRICS discussions?
The POWER framework is a proposed approach aimed at strengthening cooperation among developing countries and enhancing the role of BRICS in representing the interests of the Global South through greater financial and economic coordination.
Why are BRICS countries exploring alternative payment systems?
BRICS countries are exploring alternative payment mechanisms to reduce dependence on traditional global financial networks, lower transaction costs, promote local currency settlements and improve resilience against financial restrictions.
How can BRICS payment systems benefit developing countries?
Alternative payment systems can support financial inclusion, faster cross-border transactions, affordable remittances, digital payments and greater participation of MSMEs in international trade.
What are the major challenges associated with BRICS alternative payment systems?
Key challenges include risk of financial fragmentation, regulatory differences, cybersecurity threats, geopolitical differences among members and concerns over dominance by any single country.
What role can India play in BRICS payment cooperation?
India can contribute through its experience with UPI and digital public infrastructure, promoting secure, interoperable and transparent payment systems while ensuring strategic autonomy and balanced governance.
