Opinion
Brics wants to create an alternative financial infrastructure. Here's why it matters
Summary
- Brics' push for independent financial infrastructure signals a challenge to Western dominance and dollar supremacy
The global financial landscape may be on the cusp of transformation, with the Brics nations positioning themselves at the forefront. During the recent Kazan Summit, the bloc agreed to explore the creation of a cross-border settlement and depository system, dubbed "Brics Clear," to reduce reliance on Western-dominated financial infrastructure. This move, coupled with the potential establishment of a Brics (Re)Insurance Company, underscores the group's ambition to build a more independent and resilient financial ecosystem.
The Kazan Summit marked a pivotal moment for Brics, which now includes Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE), alongside Brazil, Russia, India, China, and South Africa. Attended by 36 heads of state and the UN secretary general, the Summit underscored Brics' rise as a multilateral forum outside Western influence, a counterweight to the dominance of institutions led by developed nations.
Brics' push for independence
In financial markets, the transfer of ownership and payment relies on secure settlement systems. Traditionally, such operations are facilitated by clearing agencies to reduce transaction risks and lower costs. In India, depositories like NSDL and CSDL safeguard shares, while bond-related trades pass through the Clearing Corp. of India. However, international trades often rely on intermediaries like CLS Bank in the US, which processes over $6.5 trillion in transactions daily.
Read this | Brics for India: A trade springboard, not an anti-West wall
A single piece of news highlights the urgency behind Brics’ push for an independent depository infrastructure. On 26 July, €1.5 billion in revenue generated from Russia’s frozen foreign reserves—held by European central securities depositories and managed by Euroclear, a consortium of European financial institutions—was transferred to an EU facility supporting Ukraine’s arms purchases. Fast forward to 23 October: the G7 approved a $50 billion loan, backed by Russia’s frozen assets. These developments underscore the risks of relying on financial systems controlled by geopolitical adversaries.
Storing assets in a depository controlled by geopolitical adversaries carries two key risks: losing access to your own funds and seeing those assets repurposed to finance actions against you. The solution lies in establishing a multilateral depository and clearance infrastructure beyond the reach of Western governments and their financial institutions.
Unsurprisingly, Russia championed this proposal ahead of the Kazan Summit, and it has now made its way into the summit declaration, with Brics agreeing to explore the feasibility of creating an independent financial infrastructure.
Breaking free from dollar dominance
Even without its new members, Brics accounts for a larger share of global output than the G7, which represents the leading Western economies, with Japan serving as an honorary member. However, the global financial system remains firmly dominated by Western institutions and companies.
Ideally, a multilateral payments system decoupled from the dollar would serve Brics' interests. The bloc is actively promoting trade among members to be invoiced and settled in local currencies. Yet, with over $13 trillion worth of dollars circulating outside the U.S., dollar-denominated transactions can still occur without involving US-based financial networks.
Notably, even US-sanctioned entities—estimated at around 10,000—continue to execute dollar transactions. They do so by routing payments through multiple intermediaries, with ownership structures becoming increasingly opaque at each step, eventually disappearing into a murky “grey zone" of financial operations.
Towards a new financial order
Developing financial infrastructure that is open yet independent of the US and Western control would mark a significant step toward weakening the dollar’s dominance. A non-dollar, potentially tokenized, payment system for settling international transactions would not only challenge the dollar’s supremacy but also reduce costs.
China has already introduced the Cross-border Interbank Payment System (CIPS) as an alternative to SWIFT, with Russia actively using it. A Brics-backed cryptocurrency for cross-border payments could go even further—eliminating the need for dollar settlements, messaging networks, and costly clearance processes, streamlining transactions in the process.
Also read | We have valid reasons to be wary of BRICS expansion
Brics is charting a path far beyond what the Non-Aligned Movement ever envisioned. While India advocates for a rules-based global order, it aligns with Brics' belief that these rules should reflect a multi-polar world, not one dictated by the West. The push to build an alternative financial infrastructure is a decisive step in realizing that vision—one where economic power is distributed more equitably across the globe.
