Why in news?
The New Delhi Declaration (18th BRICS Summit) resolved to raise intra-BRICS trade and payments in national currencies. Reuters had reported India would propose linking CBDCs for cross-border payments, but the proposal did not make it into the Declaration
UPSC Relevance
Prelims
- Payment systems and mediums
Mains
- GS-II: Bilateral, regional and global groupings affecting India’s interests (BRICS); Effect of policies and politics of developed countries on India’s interests (US sanctions); Important international institutions (BIS, IMF).
- GS-III: Indian economy – external sector, mobilisation of resources; Awareness in IT (blockchain, CBDCs); Money-laundering and its prevention (sanctions evasion risks).
What SWIFT is?
- Society for Worldwide Interbank Financial Telecommunication is a member-owned cooperative set up in 1973, headquartered in La Hulpe, Belgium.
- It links over 11,000 financial institutions in more than 200 countries via it’s messaging services for financial transactions.
- It is bound by Belgian law and European Union (EU) regulations.
- SWIFT only sends messages. It does not move money. The actual settlement happens through correspondent banks (nostro/vostro accounts) and, for dollars, through US systems such as CHIPS and Fedwire. So even a non-SWIFT message system still needs a settlement route.
Why is it a pressure point?
- Why it becomes a tool of sanctions: SWIFT is governed by Belgian law, so it must follow EU sanctions. Iranian banks were cut off from SWIFT in 2012 and again from 2018. Seven Russian banks were removed in March 2022. Since most trade is priced in dollars, US Treasury (OFAC) sanctions can also reach non-US banks – this is the “weaponisation of interdependence” (Farrell and Newman).
- Wars and US “weaponisation of the dollar” through sanctions are pushing Global South countries to find options beyond Belgium-based SWIFT. Efforts so far have been patchy.
- Dollar dominance : The dollar is on one side of close to 9 in 10 foreign exchange trades (BIS Triennial Survey) and makes up around 57–58% of global foreign exchange reserves (IMF COFER).
- Freezing of reserves: The G7 froze about $300 billion of Russia’s central bank reserves in 2022. This alarmed many central banks and increased interest in alternatives and in gold buying.
The alternatives : A patch work
| System | Owner / Year | Nature | Status and limits |
|---|---|---|---|
| SWIFT | Cooperative, Belgium (1973) | Messaging only | Global standard; bound by EU law; ISO 20022 migration completed Nov 2025 |
| CHIPS / Fedwire | USA | Dollar settlement | Core of dollar clearing; CHIPS handles far larger daily volume than CIPS |
| CIPS | PBoC, China (2015) | Yuan clearing and settlement (+ own messaging), backed by the People’s Bank of China to internationalise the yuan. | 120+ countries except India ; still uses SWIFT messages for many transactions; limited by China’s capital controls |
| SPFS | Bank of Russia (2014) | Messaging, Built to bypass Western sanctions; became crucial after Russian banks were cut off from SWIFT in 2022. | 440 users (2023); mainly Russia and allies; high sanctions risk for foreign users |
| SEPAM | Central Bank of Iran | Domestic interbank messaging | Linked to SPFS; small scale |
| mBridge | Central banks of China, HongKong, Thailand, UAE, Saudi Arabia | A multi-CBDC platform on its own blockchain (mBridge Ledger) for direct peer-to-peer settlement without correspondent banks.. | Reached minimum viable product (MVP) stage in 2024 BIS exited 2024; By late 2025, mBridge was reportedly working as a renminbi-based wholesale settlement rail for China–Gulf trade, outside the dollar correspondent system. |
| Project Nexus | BIS-born; India, Malaysia, Philippines, Singapore, Thailand | Links fast retail payment systems (like UPI) | India joined June 2024; retail, not a SWIFT replacement |
| BRICS Pay / Cross-Border Payments Initiative | BRICS (Kazan 2024 onwards) | Plan to link national systems | Voluntary; no common currency; work by BRICS Payment Task Force |
India’s own toolkit
- Rupee trade settlement (RBI, 11 July 2022): Special Rupee Vostro Accounts (SRVA) let foreign banks settle trade in rupees. Many foreign banks have opened such accounts.
- India–Russia settlement: Rupees and roubles now account for 96% of bilateral trade, according to Sberbank’s India head Ivan Nosov. 22 Russian banks and 17 Indian banks service this trade.
- Local currency deals: Local Currency Settlement System with the UAE – the first rupee payment for UAE crude followed in August 2023; similar arrangements with Indonesia and the Maldives.
- UPI abroad: UPI–PayNow link with Singapore (2023); UPI now accepted in several countries such as the UAE, Bhutan, Nepal, Sri Lanka, Mauritius and France. India also joined Project Nexus (2024).
- e₹ (CBDC): RBI piloted wholesale e₹ (Nov 2022) and retail e₹ (Dec 2022) – the base for India’s proposal to link BRICS CBDCs.
- SFMS: India’s domestic financial messaging system (built by IDRBT) – a backup if access to SWIFT is ever at risk.
- Legal base: FEMA 1999 and RBI’s powers under the RBI Act and the Payment and Settlement Systems Act, 2007 govern cross-border and payment system arrangements.
Why the alternatives remain limited?
- Larger network of SWIFT : Banks join systems that everyone else uses. SWIFT and the dollar have deep liquidity, trust and legal certainty.
- Secondary sanctions risk: Banks using SPFS or dealing with sanctioned entities risk US penalties. Chinese and Indian banks limit exposure for this reason.
- China’s capital controls: The yuan is not fully convertible, so it cannot easily become a global currency. Its share in global payments is still small.
- Trade imbalances: Local-currency trade works only if both sides can use the money. Russia piled up rupees it could not easily spend – the “rupee surplus” problem – and some oil payments shifted to AED and yuan.
- Trust deficit within BRICS: India does not want to replace dollar dependence with yuan dependence. This explains India’s absence from CIPS and its caution on mBridge.
- Tech and governance limits: CBDCs are still at pilot stage in most countries; there are no common standards, legal rules or data-sharing agreements for linking them.
India’s position – “de-risking, not de-dollarisation”
- External Affairs Minister S. Jaishankar and the RBI have said that India has no policy of targeting the dollar. The aim is to lower transaction costs and exchange-rate risk and to protect trade from disruption.
- This balance matters because US President Donald Trump has threatened extra tariffs on countries pursuing de-dollarisation or aligning with BRICS policies (late 2024 and 2025).
- India’s approach is interoperability, not a new bloc currency: UPI linkages, Nexus, SRVA and local currency settlement agreements.
Alternatives to SWIFT are about insurance against coercion, not about replacing the dollar – at least not yet.
Practice MCQ
Q1. Consider the following statements about SWIFT:
1. It is a payment settlement and messaging network.
2. It is headquartered in Belgium and is subject to European Union regulations.
3. It is owned and operated by the Bank for International Settlements.
How many of the above statements are correct?
(a) Only one (b) Only two (c) All three (d) None
Answer and explanation: (a). Statement 1 and 3 are wrong – SWIFT is a cooperative owned by its member financial institutions, not by the BIS and is only limited to messaging.
Q2. Consider the following pairs:
1. CIPS – People’s Bank of China
2. SPFS – Central Bank of Iran
3. mBridge – Multi-CBDC platform
4. Project Nexus – Linking fast retail payment systems
How many of the pairs given above are correctly matched?
(a) Only one (b) Only two (c) Only three (d) All four
Answer and explanation: (c). Pair 2 is wrong – SPFS was developed by Russia (Bank of Russia); Iran’s system is SEPAM.
Q3. Consider the following statements:
Statement I: Countries are building payment systems outside SWIFT.
Statement II: SWIFT has been used to cut off banks of certain countries as part of sanctions.
Which one of the following is correct in respect of the above statements?
(a) Both Statement I and Statement II are correct and Statement II explains Statement I
(b) Both Statement I and Statement II are correct but Statement II does not explain Statement I
(c) Statement I is correct but Statement II is incorrect
(d) Statement I is incorrect but Statement II is correct
Answer and explanation: (a). Removal of Iranian (2012, 2018) and Russian (2022) banks from SWIFT is the main reason for building alternatives such as SPFS and for expanding CIPS.
Mains Practice Question
“The use of financial networks as tools of sanctions has pushed the Global South to look beyond SWIFT.” Examine the prospects and limits of alternative payment systems, and discuss India’s approach. (15 marks, 250 words)
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