BRICS' vision for a new financial architecture

AT the upcoming BRICS summit in Brazil, member nations are expected to intensify their push for local currency settlement and advance efforts to build an independent financial system that reduces reliance on the U.S. dollar and Western-dominated institutions.

- By Maya Majueran

These initiatives reflect a broader strategic ambition: to insulate BRICS economies from external shocks and geopolitical risks while laying the foundation for a more equitable global financial architecture.

Settling trade in local currencies allows BRICS countries to mitigate exposure to dollar volatility, buffer against U.S. sanctions, and lessen the systemic risks posed by the dollar's role as the dominant global reserve currency. Many emerging markets remain vulnerable to the ripple effects of U.S. monetary policy, especially Federal Reserve interest rate hikes which often trigger capital outflows, currency depreciation, and higher debt servicing costs.

To shield themselves, BRICS countries have increasingly turned to non-dollar trade settlements using currencies such as the Chinese renminbi (RMB), Indian rupee, and Russian ruble. These efforts aim to reduce the financial instability that dollar-driven shocks inflict on emerging economies. Dollar shortages, for instance, can severely disrupt trade, limit access to essential imports, and spark liquidity crises, leading to inflation and economic strain.

BRICS members like Russia and Iran - both under U.S. sanctions have been at the forefront of developing alternative trade settlement systems. These include the use of local currencies, bilateral barter-style arrangements, and alternatives to the SWIFT messaging system. Such mechanisms are designed to bypass Western banking infrastructure and reduce vulnerability to financial coercion.

China, anticipating potential future U.S. containment strategies, is proactively expanding the renminbi's global role, bolstering domestic payment systems, and deepening ties with the Global South. India, too, is cautiously exploring parallel arrangements that support its strategic autonomy, recognising the risks of over-dependence on dollar-centric systems.