India is reportedly pushing for members of the BRICS grouping to set up formal links for cross-border payments via their central bank digital currencies (CBDCs).
The Modi government is due to host the BRICS summit in New Delhi this weekend, with a clutch of world leaders expected – such as Vladimir Putin, Iran’s Masoud Pezeshkian, and possibly Xi Jinping.
BRICS is an 11-member group of ’emerging economies’ set up in 2009 by Brazil, Russia, India, China, and South Africa, which expanded in recent years to include Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia, and the United Arab Emirates.
The Reserve Bank of India proposed links to BRICS members to facilitate trade earlier this year, according to Reuters, which noted that political and technical hurdles could limit progress on such a move.
India’s push for digital currency swaps
India suggested such links at the BRICS summit in Rio de Janeiro last year, and its push for swaps between digital currencies such as the Digital Rupee or e-Rupee is expected to be on the agenda for the leaders’ get-together on September 12 and 13.
However, analysts have said talks on setting up shared payment mechanisms have not made great progress, and that partly stems from difficult relations between member states, such as India and China, who had a deadly border clash in mid-2020.
They say currency-swap agreements may be needed to help handle trade imbalances before CBDC links can begin to function.
Another factor was US President Donald Trump’s warning that he would impose stiff tariffs on nations that set up dealings to avoid dollar-based US payments.
New Delhi has said it is not seeking to avoid using the US dollar, or creating an alternative to the SWIFT settlement mechanism, but just wants fast and cheap digital links for cross-border dealings.
World leaders expected to attend
Indeed, talks at the summit on Saturday are likely to focus on wars in the Middle East and Ukraine, as well as economic challenges, analysts say.
And member states have some sharply different positions on the war launched by the United States and Israel.
Vladimir Putin and his Iranian counterpart, Masoud Pezeshkian, are expected to arrive in New Delhi as early as Friday, with both due to hold talks with Prime Minister Narendra Modi.
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Chinese President Xi Jinping has also been invited, although his participation in the two-day BRICS meeting has yet to be confirmed by Beijing.
It would be his first visit to India since 2019 – and would mark the biggest step yet in a cautious thaw between the rival neighbours, six years after a deadly military clash along their disputed Himalayan border.
Ties between the nuclear-armed Asian giants have been warming since the 2020 clash, with flights, visas and high-level contacts gradually being restored.
However, deep mistrust remains, with their contested frontier, a widening trade deficit and strategic rivalry still complicating ties.
“An India-China bilateral would be very important – if it takes place,” Pradeep Taneja, a China-India expert at the University of Melbourne, said.
Talks on Mideast war ‘a test of cohesion’
“The Gulf conflict is going to be the central fault line this time during the BRICS summit,” Harsh V Pant of India’s Observer Research Foundation told AFP.
“What was seen until last year as an achievement – the expansion of BRICS – today looks like a big constraint on BRICS,” Pant said.
It will be Pezeshkian’s first visit to India as president, and will put the Middle East conflict firmly on the agenda.
“The war in Iran will provide a stern test of the (expanded) group’s cohesion,” said Shilan Shah of Capital Economics, noting the failure of the BRICS foreign ministers to agree on a joint statement when they met in New Delhi in May.
India maintains cordial relations with Iran and Israel, but is also careful to strike a delicate balance in its ties with Washington.
Posters of a beaming Modi line streets across New Delhi to welcome leaders, with heavy deployments of security forces across the capital and widespread traffic restrictions in central districts.
Delhi police have urged people to “stay patient, stay cooperative“, with Friday declared a city holiday.
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Asian markets dip, oil firms
Meanwhile, Asian stocks fell on Thursday and Brent oil extended gains a day after breaking the psychological $100 barrier on the back of resurgent Middle East hostilities that have fanned inflation fears.
With the US and Iran exchanging strikes around the key Strait of Hormuz – and Saudi Arabia entangled in a conflict with Yemeni rebels, there appears little prospect of an end to the crisis, dealing a rally across markets.
Brent crude struck past $101 on Wednesday for the first time since July and has surged more than 20% in less than a week as forces have exchanged attacks on vessels in Hormuz.
That has fanned speculation the Federal Reserve and other central banks will have to hike interest rates to tame prices – US diesel is already at a record of almost $6 a gallon. The European Central Bank is tipped to lift borrowing costs Thursday.
In the latest round of attacks, Iran said it hit more than a dozen ships attempting to pass through the strait on Wednesday, and announced an expansion of a no-go zone outside the waterway.
Tehran has choked off the strait since the war began at the end of February, while Washington continues to press a counter-blockade of Iranian ports.
Iran also said it struck a US military base in Jordan in response to US forces destroying five Iranian oil tankers a day earlier.
Meanwhile, Saudi Arabia is entangled in a conflict with Houthi rebels who are striking oil facilities in the kingdom as part of an offensive towards the Red Sea’s Bab al-Mandab chokepoint.
The rebels reported about 40 strikes in fresh Saudi attack on Thursday.
The waterway is an increasingly important route for Saudi oil with the Strait of Hormuz shut.
Brent hit a high of $101.94 on Thursday, while West Texas Intermediate peaked at $97.79, the highest since May.
US rate hike could depend on consumer data
The rally has stoked expectations that inflation will spike again, and comes as Washington prepares to release key consumer price data that could sway the Fed’s thinking on interest rates.
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