BRICS Cross-Border Payment Cooperation: Its Impetus, Paths and Challenges

As cross-border trade and investment continue to grow and the geopolitical rivalry becomes ever more intense， cross-border payment becomes one of the topical issues for the BRICS countries to reform the global economic governance system. BRICS cross-border payment cooperation is directly due to the flaws in traditional cross-border payment system， namely， high cost， low efficiency， opaque transactions， high security risks and weaponization. The BRICS countries are committed to improve the global cross-border payment governance system and their cooperation on it follows two paths： a security-oriented path with anti-sanctions as its core and a development-driven path centered on promoting cross-border trade and investment. Although BRICS Bridge proposed by Russia makes a decentralized cross-border payment system possible， it still faces problems and challenges such as different interest demands of different member states and lagging development of blockchain technology.

The Flaws in Traditional Cross-border Payment Systems

Based on the technology used， cross-border payment systems can be divided along a traditional and digital line. At present， the dominant payment system runs on agent bank model， which means that a commercial bank opens a clearing account in an overseas agent bank， sends cross-border messaging mainly through the SWIFT channel， and completes cross-border payment and clearing through the payment and clearing system of the agent bank. In recent years， with the upgrading of emerging blockchain technology and distributed ledger technology， countries have begun to explore digital currency payment systems， which are quite different from the traditional systems in technology， application model and supervision.

The traditional systems under the agent bank model have such technical flaws as high cost， low efficiency， opaque transactions and high security risks. First， the cost is high. Under this model， cross-border payments need to go through settlement， clearing， reconciliation， SWIFT channel and many other links， each involving cost expenditure. In recent years， as the global efforts against money laundering and terrorist financing continue to ramp up， the compliance costs incurred on banks to meet regulatory requirements have increased significantly. Second， the efficiency is low. A cross-border payment needs to be completed jointly by the agent bank and the domestic payment and clearing system， making the payment chain long. Moreover， the payment and clearing systems in different countries have different operating hours， which makes it hard to achieve timely clearing. Third， its use is in decline. Between 2011 and 2018， the number of global agent banks dropped by about 20%， further reducing the availability of financial services. Fourth， security risks are high. Due to the long business chain and the involvement of multiple regions and currencies， the traditional system is hard to put under regulation and thus prone to security risks. More importantly， in the context of heightened geopolitical risks， the traditional system is at risk of being weaponized and used as tools of sanctions. Hegemonic powers can use their special advantage in the cross-border payment system to impose financial sanctions on other countries， which may hamper the latter’s financial security. Under the agent bank model， information flow and fund flow are independent of each other. The messaging system represented by SWIFT and the currency-based payment and clearing system of different countries constitute cross-border payment system. In terms of information flow， SWIFT， as the world’s most important channel for cross-border financial messaging， covers more than 200 countries and regions in the world， supports real-time payment and clearing systems in more than 90 countries and regions， and provides services to more than 11，000 financial institutions around the world. Despite SWIFT’s positioning as a neutral and professional international organization providing financial communication services to financial institutions， the U.S. rachets up efforts to weaponize it. After the 9/11 terrorist attacks， the U.S. has gradually tightened its control over SWIFT in the name of anti-terrorism， and gained access to cross-border payment information of other countries through SWIFT.

In addition to information flow， the U.S. continues to use its dollar monopoly in capital flow to impose financial sanctions on others. As the dominant international payment currency， the U.S. dollar has the largest share of SWIFT’s business. At present， about 95% of the world’s cross-border dollar transactions are dominated by the New York Clearing House Interbank Payment System （CHIPS）. Leveraging the CHIPS and SWIFT， the U.S. carries out long-arm jurisdiction in cross-border payment system by controlling both messaging and currency payment， putting the financial security of other countries at risk.

Paths for BRICS Cross-Border Payment Cooperation

With a view to addressing the flaws in traditional cross-border payment systems， the BRICS countries， as an important force to reform and improve the global governance systems， put cross-border payment cooperation on the agenda of the BRICS Summit. At present， there is consensus within BRICS on such cooperation， but views differ on what cooperation path to adopt. Generally speaking， there are two different paths. One is the security-oriented path. This path focuses on enhancing financial security， preventing and coping with the weaponization of cross-border payment systems， and strengthening cooperation against financial sanctions. The other is the development-driven path. It focuses on providing stable and reliable financial infrastructure， reducing cost， improving efficiency， and strengthening cross-border payment cooperation for promoting cross-border trade， investment and economic development among countries.

Countries that advocate a security-oriented path are represented by Russia and Iran. Both countries have faced financial sanctions imposed by Western countries， and both created their own cross-border payment systems in order to maintain financial security after being threatened. For Russia， in the aftermath of the Crimea crisis in 2014， the U.S. and Europe repeatedly threatened to cut off Russia’s contact with SWIFT， resulting in big fluctuations in Russia’s macro economy. In 2014， Russia drafted legislation to develop the System for Transfer of Financial Messages （SPFS）. As of January 2024， more than 550 financial institutions from 20 countries have joined the SPFS. For Iran， the U.S. intensified its financial sanctions on it in March 2012， leading to SWIFT cutting ties with more than 30 important Iranian financial institutions under U.S. pressure. In 2018， the Trump administration unilaterally withdrew from the Joint Comprehensive Plan of Action， and SWIFT kicked out Iranian financial institutions once again. In 2019， the Central Bank of Iran officially launched the System for the Exchange of Financial Messages of Iran （SEPAM）.