Finding a quicker way around SWIFT

India is about to create a messaging system for financial institutions for cross-border transactions in rupees. This serves two objectives. One, to de-dollarise India's trade with the world. Two, to provide a backstop against disruptions caused by denial of access to the most widely used financial messaging system, SWIFT, Society for Worldwide Interbank Financial Telecommunication. RBI already has a platform in place, the Structured Financial Messaging System. As do China and Russia, which has banned SWIFT in retaliation to sanctions following hostilities with Ukraine. The need for alternatives to SWIFT has become more urgent with its repeated use in economic warfare. China and India are also driving cross-border retail spending and remittances. They have built instant payments systems that they intend to deploy to break the dominance of Visa-Mastercard and the payment interface developed by the EU-based SWIFT.

A new global standard for financial messaging systems that came into force this year is expected to improve efficiency and reduce payments friction in international transactions. G20 has a target of settling 80% of all international transactions within an hour by 2027. The lion's share of payment delays occur due to time zones, compliance checks, currency controls and absence of real-time processing. Richer data standards will help by allowing for greater automated processing and will aid interoperability of international payment systems by harmonising message formats. India is launching its system to coincide with these improvements in market access.

The speed at which SWIFT can clear payments is based on the volume of transactions it handles. This is essentially based on the predominance of the dollar in settling international transactions. Trade in rupee, or in renminbi, just doesn't stack up. This builds a moat around SWIFT. At this point, India's offering is a facilitator for internationalising the rupee and linking market infrastructure. The acceptance of its financial messaging system will be governed by the growth of rupee trade.