RAJAN KATOCH

Remember when you wanted to transfer money to a foreign country or receive funds from abroad to your bank account? One vital bit of information that you had to have is the SWIFT code of the banks involved. This code was needed to make sure your money ended up in the right place, or was received by you correctly.

So what exactly is SWIFT? Its full form is Society for Worldwide Interbank Financial Telecommunications. As suggested by the name, it is a provider of global financial messaging services. It is a protocol that enables secure and quick worldwide money transfers to happen. SWIFT is run by a cooperative society registered in Belgium promoted by a consortium of U.S. and European central banks. Over time, it has evolved as a widely acceptable facility that has become the de facto industry standard. It is used by over 11,000 financial institutionsin 200 countries, and that’s why it matters. It’s almost essential for enabling international money transactions.

This low-key financial messaging service has hit the headlines recently. It has been roped into the economic warfare unleashed by the Western powers on Russia following the Ukraine crisis. Complying with an American led directive, SWIFT has overnight cut off Russian banks from their network, disrupting their transactions with the rest of the world. As a result, today SWIFT is no longer “worldwide” in scope.

This action is being viewed with concern by many non-US, non-European countries. Apparently, what was thought to be a convenient and neutral technical facility can be easily weaponised against a country on purely political considerations. Countries may fear a similar fate if they incur the wrath of the US, for whatever reason.

This opens up room for more neutral, parallel systems to fill the gap.

Are there existing alternatives? There are a couple of prominent alternatives. Russia itself has something equivalent called SFMS, which is used by it domestically and by a few other countries of the former Soviet Union. This system is reportedly currently under consideration for use in India-Russia trade instead of SWIFT. China has a Cross-Border Interbank Payment System or CIPS, which is not just a messaging system, but also a payment settlement system. It is being used by some financial institutions in Russia, Japan and countries linked to China’s Belt and Road Initiative. CIPS however also uses SWIFT for financial messaging.

Can India develop its own alternative? For doing so, there must be a felt need, technical capability, and international acceptability.

Recent events have created the felt need. There is now undoubtedly a need for a more broad based, equally efficient alternative global financial messaging system that is not susceptible to disruptions in great power conflicts.

On technical capability, India is a leader in the field. It has its own, very successful Secure Financial Messaging System (SFMS) which operates the RTGS and NEFT facilities for payment settlements. This is run by a subsidiary organization of the Reserve Bank of India. Just like the SWIFT code, there is an IFSC code that one needs to use for domestic inter-bank transactions through RTGS and NEFT.

Beyond this, India has developed a unique and vibrant UPI platform that enables small banking transactions to take place securely and easily through mobile phones. Serving a big population and domestic market, Indian messaging and settlement systems are already handling very large transaction volumes. For example, in February 2022, UPI handled an average of 150 million real time messaging and payment settlement transactions per day. In the same period, SWIFT was handling about 45 million financial messaging transactions per day.

India has a strong domestic information technology base. It would not be difficult for Indian entities to adapt existing platforms to serving the needs of global financial messaging and international fund transfers, with the highest levels of security and reliability. Indian IT majors are already developing and managing systems for multinational banks meeting their exacting standards.

Will it be acceptable by other countries? SWIFT, with its first mover advantage and backing by the Western financial powers, will remain. But the reliability of SWIFT has been thrown into doubt. Consequently there is today a window of opportunity that wasn’t there before. Many countries in the neighbourhood, South East Asia, West Asia and Africa may be amenable to look at an agnostic functional service promoted by an entity outside Western control as an alternative worth considering as insurance against sudden disruptions in SWIFT. For this, the parallel service would have to be positioned as a non-political, safe and reliable technology solution that efficiently meets the needs of international financial messaging and settlement without any country or institutional bias.

Political acceptability of an Indian service may be higher than that of the leading alternative systems. For example, an India-anchored system would likely have a wider reach than the Russian SPFS, which would find it difficult to expand in the prevailing environment. It would also be free of the distrust that may possibly be associated with the Chinese CIPS due to itsimplicit coercive connotations.

To make it happen, first of all there has to be a buy in of the vision. The Indian alternative would need to be actively developed and promoted by a competent technical entity with the support of Government and RBI. As a technical initiative that can subtly enhance the country’s standing and influence in the financial world, it can be another element of the country’s soft power. To encourage its adoption by countries, there would need to be a conscious foreign policy outreach, perhaps starting with the immediate neighbourhood and countries with stronger trading relationships.

It’s something that is very doable, and worth doing.

As they say, in every crisis, there is an opportunity!

(The author is a former civil servant who has also served with the World Bank. He writes by invitation for RK