CBDC is better than a BRICS currency

or iThe BRICS Currency: A Solution in Search of a Problem in the Age of CBDCs By K Yatish Rajawat

The dream of a BRICS currency—a unified tender for Brazil, Russia, India, China, and South Africa—has lingered as a geopolitical counterweight to the dollar's dominance. Advocates see it as a path to financial sovereignty, freeing emerging markets from the constraints of dollar hegemony. But in today's fast-evolving financial ecosystem, where Central Bank Digital Currencies (CBDCs) are becoming mainstream, pursuing a BRICS currency seems anachronistic and even redundant.

The Digital Reality: CBDCs Redefine Trade

The central premise of a common currency rests on the need for a shared medium of exchange. Historically, cross-border trade required an "interim" currency—such as the U.S. dollar or euro—for transactions between countries with distinct legal tenders. However, the rise of CBDCs eliminates this necessity.

CBDCs, issued by central banks and powered by blockchain or other distributed ledger technologies, allow countries to settle bilateral trade directly, as opposed to the traditional “interim” currencies like the dollar. This makes a BRICS currency unnecessary for the very purpose it seeks to serve. With CBDCs, India can settle its energy trade with Russia in digital rupees and rubles, bypassing the dollar without requiring an interim BRICS unit. Similarly, Brazil and South Africa can transact directly without needing to peg their payments to a standard tender.

CBDCs: Efficiency and Cost Reduction in Bilateral Trade

CBDCs' efficiency lies in their digital-first nature. Traditional cross-border payments rely on a multi-layered system involving correspondent banks, Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging networks, and currency conversion, each adding time delays, compliance costs, and transaction fees. With CBDCs, these inefficiencies vanish.

Meanwhile, CBDCs enable near-instantaneous settlements powered by distributed ledger technologies that allow direct, secure transactions between central banks. This eliminates the need for intermediaries like correspondent banks, reducing the time and costs of routing payments through multiple layers. Furthermore, by allowing direct exchanges between digital currencies, CBDCs cut down on the high conversion costs associated with traditional trade, where multiple currency exchanges and intermediary fees often inflate transaction expenses. The transparency inherent in CBDCs also simplifies compliance with regulations like anti-money laundering (AML) and know-your-customer (KYC) norms, reducing the risk of fraud, disputes, or delays. These efficiencies collectively make CBDCs a far superior mechanism for bilateral trade.

Traditional cross-border payments incur transaction fees ranging between 5-7% of the transaction value. These costs arise from intermediary fees (e.g., correspondent banks), currency conversion charges, and compliance expenses (AML/KYC). CBDCs can reduce these costs to as low as 1-2% by eliminating intermediary banks, enabling direct currency exchange between nations using interoperable CBDC platforms, and reducing delays and associated costs through real-time settlements.

For instance, the Bank for International Settlements (BIS) reports that integrating CBDCs could cut cross-border payment costs by up to 50-75%, depending on the system’s adoption scale.

Compliance with international financial regulations such as AML and KYC adds significant overhead to trade transactions. CBDCs, being inherently traceable and secure, simplify these processes, reducing compliance-related costs by an estimated 10% to 20% in international trade. This is a huge saving as it combines international trade compliance with an electronic system, making it seamless and useful for all parties involved.

For a $100 million cross-border trade settlement, traditional costs are around5-7%, or $5-7 million. However, for CBDC-enabled transactions, the same costs are 1%-2 %, or $1-2 million. This results in savings of $4-6 million per transaction. For nations conducting billions of dollars in trade annually, this translates to billions in collective savingscan ensure the viability of products and services that were not even traded earlier.

A Geopolitical Negotiating Tool, Not a Long-Term Solution

A BRICS currency, at best, is a symbolic initiative, signalling unity against Western financial systems. But beyond its negotiating clout, its practical utility is limited. Designing a viable common currency requires a degree of economic and monetary alignment that BRICS countries lack.

Consider the euro—a cautionary tale. Despite the European Union’s deep economic integration and relatively aligned monetary policies, the euro has faced periodic crises. Imagine replicating this experiment among BRICS nations with vastly divergent political systems, growth trajectories, and monetary philosophies—it’s a logistical and economic minefield.

India, already a leader in digital payments, has much to gain from prioritising CBDCs over a BRICS currency. The Reserve Bank of India (RBI) is piloting the digital rupee, which has significant potential for cross-border trade. By leveraging CBDCs, India can maintain monetary sovereignty while enabling cost-effective and efficient bilateral trade. The country can avoid the pitfalls of joint governance, which a BRICS currency would necessitate, and retain full control over its trade mechanisms.

The strategic autonomy provided by CBDCs also ensures that India’s financial systems remain insulated from undue external influence. Unlike a BRICS currency, which would dilute control among member states, a digital rupee allows India to design its financial systems to suit national priorities. Additionally, CBDCs shield against the risk of sanctions, enabling India to transact with partners like Russia without relying on the traditional financial networks that can be weaponized. The ability to bypass currency volatility, reduce settlement costs, and streamline compliance processes further underscores the utility of CBDCs in enhancing both trade efficiency and financial stability.

The Future Lies in Tech, Not Tokenism

The financial world is moving toward decentralisation and digitisation, not bloc-based currencies. While the idea of a BRICS currency is a powerful negotiating tool in challenging dollar dominance, there are more long-term solutions. The future lies in CBDCs, blockchain-enabled trade mechanisms, and digital ecosystems that transcend the need for any interim currency.

India and its BRICS partners should prioritise accelerating CBDC adoption, building robust financial infrastructure, and fostering bilateral agreements tailored to their unique needs. A BRICS currency, while ideologically appealing, is a relic of the 20th-century monetary order.

Ultimately, technology—not tokenism—will determine the next wave of financial sovereignty.