De-dollarisation: India Explores Creating SWIFT Alternative
India’s ambitious plan to develop its own financing messaging system on the lines of Belgium-headquartered Society for Worldwide Interbank Financial Telecommunication (SWIFT) will present the world with an “alternative” to the west dominated financial architecture, an Indian expert has told Sputnik.
Major Indian banks are connected to the SWIFT network, which has a presence in over 200 countries. Overall, 11,000 banks are part of the network, according to its website.
Ashwani Mahajan, the co-convenor of economic advocacy group Swadeshi Jagran Manch (SJM), said that having a “Indian version” of SWIFT network would be “logical and a welcome step” in New Delhi’s ongoing drive to “internationalize the rupee” and move away from carrying out trade in US dollar.
The UPI has been introduced in countries such as the United Arab Emirates (UAE), Mauritius, Singapore, Nepal and Bhutan. This month, Indian Prime Minister Narendra Modi also announced the introduction of UPI in Paris during his trip to France.
Mahajan noted that the Reserve Bank of India (RBI) last July had also allowed foreign banks to open Special Rupee Vostro Accounts (SRVAs) in Indian banks to facilitate trade settlements in rupees.
The Indian government told the Parliament this week that banks from 22 countries have opened SRVAs in 20 Indian banks till date. These countries include Russia, Germany, Singapore, Malaysia, Bangladesh, Guyana and the United Kingdom among others, according to Indian commerce ministry.
Mahajan said that the India’s Foreign Trade Policy (FTP) for 2023-28 calls for “encouraging” the use of Indian rupee (INR).
Significantly, New Delhi’s efforts to shed its reliance on the US dollar through rupee-tailored mechanisms such as UPI, SRVAs and plans to have an own financial messaging system have gathered momentum coincide with sweeping western sanctions against Russia.
Last March, the European Union (EU) cut major Russian banks off SWIFT network as a payback for Moscow’s special military operation in Ukraine.
The move led to economic disruptions globally, including in India-Russia economic ties as both the countries have been using SWIFT to carry out trade. According to reports at the time, Indian businesses were unable to get millions of dollars of their payments out of Russia due to restrictions on SWIFT.
Although the trade between the two countries has since broken all previous records due to Russian energy exports to India, Russian Foreign Minister Sergey Lavrov said on the fringes of the Shanghai Cooperation Organization (SCO) Council of Foreign Ministers (CFM) meeting in March that Russian businesses have billions of rupees in Indian banks which they were unable to use.
In 2018, New Delhi was also forced to cut off its booming energy trade with Iran after the then Donald Trump administration pulled Washington out of the Joint Comprehensive Plan of Action (JCPOA) and re-imposed economic sanctions on the country.
Mahajan, however, cautioned that the process of developing an own financial messaging system would possibly incur a pushback from “established players” such as SWIFT.
In fact, not only India, but many countries such as China, the ten-country ASEAN and other developing states have in recent months been ditching the US dollar in favour of local currencies in trade settlements. As it is, the share of US dollars held by central banks was at a 25-year-low in the fourth quarter of 2020, according to the International Monetary Fund (IMF).
The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020.