RBI's BRICS Digital Currency Plan Aims to Dethrone US Dollar in Global Trade

BRICS (Brazil, Russia, India, China and South Africa) has, with the recent addition of Iran, Ethiopia, the United Arab Emirates (UAE), Egypt, and Indonesia to the bloc, emerged as a major influencer in the Global South on the issue of financial governance, according to the article in Modern Diplomacy.

The RBI's proposal gives due attention to interoperability of the Digital Rupee (e-₹) with its CBDCs. Instead of promoting the creation of a single shared supernational currency, this approach aims to interconnect the existing national currencies, such as India's e-Rupee and Brazil's Drex. The objective is to facilitate faster, smoother cross-border payments for trade, tourism, and financial transactions using CBDCs issued by member nations without compromising on national monetary sovereignty. Instead of relying on traditional systems like SWIFT (Society for Worldwide Interbank Financial Telecommunication) or similar networks, a digital currency would enable direct settlement between national digital currencies. The primary reason the RBI is pursuing this proposal is the collective desire to reduce dependence on the US dollar. For decades, the dollar has been the world's primary reserve currency and the main element of international trade, the article states.

However, the BRICS members are increasingly cautious about the use of sanctions and the SWIFT messaging system to cut countries off from the global economy. By proposing a "Digital Currency", BRICS aims to create a system where a trader in India can pay a supplier in Brazil using their respective CBDCs, thereby eliminating the need for an intermediary currency, such as the dollar, that acts as a "middleman", and reducing transaction costs. Not only would it encourage monetary sovereignty, but it would also speed up the settlements. Local currency transactions also strengthen the domestic financial systems by increasing demand for national currencies in international trade, the article observed.

This idea followed the BRICS 2025 summit in Rio de Janeiro, which encouraged the development of an interconnected payment system to speed up and simplify trade. This could strategically bring India's rural producers into the global value system through digital finance. When exporters settle transactions in CBDCs without the costly dollar conversions, pricing becomes more competitive, the article pointed out.

The RBI recognises, in its stated proposal, the need to create interoperable technology standards so that different CBDCs can communicate securely, common governance mechanisms to set rules, and arrangements to handle trade imbalances across currencies. India and the UAE had previously signed a deal to link their CBDCs and jointly run pilot programmes, according to an RBI press release. India's e-rupee, with 70,00,000 retail users since its 2022 launch, and China's intent to expand global use of its digital yuan show the growing interest among members in adopting digital currency, the article added.

- IANS