Decentralization Of The Global Financial System: Reforming Trade Settlement Within The BRICS Framework

Adam Smith, often regarded as the spiritual father of capitalism, warned against the dangers of concentrated economic power long before the modern global financial system came into being. In The Wealth of Nations, he says:
“The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain, in particular employments, the competition to a smaller number than might otherwise go into them, have the same tendency, though in a less degree, to occasion a very important inequality.”

At its very core, Smith’s critique warns against monopoly, which by its very nature enables injustice. It grants the monopolist the power to impose his/her will without any fear of reprisal, as dependence transforms domination into a so called “necessary evil.” Thus, rationality dictates that the most effective way to counter a monopoly is not by mere persuasion, but by dilution and decentralization of its power.
In today’s world, the global financial system increasingly resembles the very monopoly Smith warned against. The system, which is centered on the US dollar and reinforced by institutions such as the IMF and the World Bank, as well as American military power has become the most potent weapon in the US’s strategic arsenal. Particularly under the Trump administration, this power has been used with unprecedented utility, not only against adversaries but also against allies via sanctions and tariffs. The overuse of this strategic weapon has not only exposed the flawed nature of the global financial system, but it has also eroded trust in the neutrality, stability, and reliability of the current global order. Decentralization is therefore, no longer a radical choice but a structural necessity.

This essay therefore focuses on BRICS as the most viable institutional platform for reshaping the global financial system into a more decentralized and democratic order. Collectively, BRICS+ economies today account for nearly 40 percent of global GDP, surpassing even the G7 in terms of purchasing power parity. Thus, the institution might be the only entity that possesses the economic weight necessary to challenge the monopolistic foundations of the current order. This essay examines, how structural reforms particularly in trade settlement, credit clearing, debt issuance and institutional design can gradually dilute and disrupt the concentration of power in the global financial system without triggering a systemic collapse. Rather than advocating for an abrupt replacement, this essay focuses on redundancy and trust building as the foundations through which the institution can alter the architecture of the current global financial order.
The primary constraint confronting BRICS’ ambition to dilute dollar dominance does not lie in the absence of a single, unified currency, but in a more subtle structural limitation, which is the issue of ‘currency mismatch and stuck balances.’ When trade is settled in national currencies, such as India purchasing Russian oil in rupees, exporters like Russia accumulate large surpluses in currencies they cannot easily use elsewhere, because third parties for example, China do not accept rupees. These trapped balances lead to trade friction and ultimately force countries back towards the dollar as the only universally accepted medium of exchange. In effect, the dollar retains its dominance not because alternatives do not exist, but because no multilateral mechanism currently allows states to recycle their surpluses across the group without first converting them into dollars.

However, this hurdle can be overcome through the creation of a ‘BRICS multilateral clearing union’, a model which has been previously implemented in Europe through the creation of European Payments Union (EPU) of the 1950s. The EPU allowed post-war European states, which were initially distrustful and short of dollars, to trade in national currencies while clearing imbalances amongst themselves through a common accounting unit. It is important to highlight that this was not a currency, but a credit and settlement mechanism designed to build trust by settling surpluses and deficits across members and settling only net positions periodically. This institutional trust building was the foundation to European integration, which paved the way for the adoption of the Euro decades later. Similarly, for BRICS, the immediate objective should not be the creation of a common currency, but the gradual buildup of trust that can rival the confidence states currently place in the US dollar.

Another proposed reform would be th establishment of a shared accounting unit for the bloc, valued against a basket of member currencies and possibly anchored to commodities such as gold or other natural resources. Importantly, this unit would be used solely for inter-central-bank bookkeeping, not public circulation. This would ensure that no single currency or country becomes too dominant within the system, ensuring a gradual buildup of trust amongst the members. Thus under this framework, trade would continue in national currencies and theoretically, India would still pay Russia in rupees, but Russia’s surplus would be recorded as a credit in the BRICS accounting unit, which could then be transferred to China in exchange for goods, eliminating the rupee bottleneck completely. Periodic settlement of net balances could occur in agreed reserve assets, preventing permanent imbalances. This combined with digital settlement platforms and interoperable central bank digital currencies could also bypass SWIFT messaging and US controlled banking, reducing sanctions vulnerability.
Furthermore, surplus credits accumulated within the clearing union particularly by large exporters such as China and Russia can be pooled into a ‘BRICS liquidity and stabilization fund’ managed by the BRICS Bank. These pooled credits could then be converted into loans denominated in a BRICS accounting unit or in local currencies, allowing recipient states to finance balance of payments needs without resorting to dollar denominated debt. This mechanism mirrors how the US recycles global trade surpluses into Treasury securities, but in a multipolar form. By offering predictable, non-dollar financing, the alliance can gradually integrate developing economies into its financial system, reducing their dependence on the dollar.

However, even if a theoretical clearing and credit system for the bloc is technically sound, its greatest vulnerability lies in potential political interference. One notable example is the India-Pakistan dynamic. If Pakistan, a chronically IMF dependent economy, were to seek financing through the BRICS, India’s political objections could easily block such moves. It is important to note that the success of Western institutions lies not in the absence of power politics, but in their ability to conceal them behind rules and standardized conditionality. For BRICS to rival this credibility, it must therefore develop IMF and World Bank style structures that insulate lending decisions from bilateral and multilateral disputes.

Moreover, in regards to the SWIFT messaging system, rather than attempting to replace it outright, the alliance must pursue a strategy of functional redundancy i.e. making exclusion from SWIFT economically ineffective. This is already partially underway through China’s CIPS and Russia’s SPFS but these systems remain fragmented. Thus, the objective should be full interoperability i.e. enabling settlements to be routed seamlessly across multiple systems. One such example is ‘Dual routing’ where a transaction is capable of being processed simultaneously or alternatively through SWIFT and a BRICS-linked network allowing banks to switch channels instantly if sanctions disrupt one channel. Over time, incentives such as lower transaction costs, faster settlements, access to BRICS credit lines and other facilities could encourage other states to adopt these parallel networks increasing trust in these in the process. Ultimately, if the Western system becomes a maze of “no-go zones,” states will rationally gravitate towards the newer system not out of ideology, but out of operational necessity.

To sum up, the challenge facing the world today is not of states choosing sides, but rather of restoring balance to a system that now resembles a monopoly that is maintained by the coercion of other states. If implemented, these reforms have the potential to offer a vital safeguard for the human element of the global economy. By diluting the monopoly of a single currency, we are laying the foundations of a system where a nation’s standard of living is no longer held hostage to foreign policy shifts. As history has shown, systems built on trust endure longer than those sustained by coercion, and it is in this space i.e. between dominance and disorder that BRICS has the opportunity to reshape global finance into a more multipolar order.