BRICS nations discuss new payment system to challenge dollar at Delhi summit

Rising tension between the US and Iran, war-like conditions in the Middle East, and tariff threats from US President Trump against various countries have created huge uncertainty in global trade. Against this backdrop, the world's major economies in BRICS are stepping up efforts to find a strong alternative to the dollar.

For several decades, the US dollar has been the backbone of global trade. The Dollar Index (DXY), which measures the dollar's strength against six major currencies, is currently trading at the 99.09 level. Due to rising tension in the Middle East and a spike in crude oil prices, with Brent crude crossing 107 dollars a barrel, international investors are still preferring the dollar as a safe option. But several countries allege that the US uses this strength of the dollar for its own political and economic benefit.

The US imposes economic sanctions on countries like Russia and Iran and cuts them off from the SWIFT banking network to maintain its global dominance, which brings their international trade to a halt. But BRICS has now expanded. Besides older members like India, China, Russia, Brazil and South Africa, oil-producing and powerful economies like the UAE and Saudi Arabia have also joined.

If BRICS countries succeed in building their own digital payment network or an independent financial system, the weapon of US economic sanctions would be weakened. When these countries trade oil and other goods internationally in their own local currencies, such as the rupee, yuan, rouble and dirham, instead of the dollar, the global demand for the dollar would fall significantly. This could be a big blow to the US economy, and that is America's biggest worry.

This issue is being discussed seriously at the 18th BRICS Summit held at Bharat Mandapam in New Delhi. BRICS member countries are pushing for how to link their central bank digital currencies, or CBDCs, with each other for international transactions. This would make direct and faster trade possible without banking intermediaries.

However, bringing in a shared physical or digital BRICS currency, like the European Union's euro, is considered very difficult and complicated, because the economic policies and national interests of China's yuan, India's rupee and Russia's rouble are different. India has already made clear that it favours increasing trade in each country's own local currency rather than a single shared BRICS currency.

Experts believe that the dominance of the US dollar ending overnight, or the dollar being fully phased out, is not possible for now. The dollar still has the largest share in central banks' foreign exchange reserves worldwide, in the bond market and in international trade. The current effort by BRICS countries is not to eliminate the dollar entirely, but to build a strong alternative system for their own security in case of any economic emergency in the future.

The world is watching closely to see what impact this new BRICS payment system has on global finance going forward, and how the US responds to this challenge.