ALTERNATIVES TO THE SWIFT PAYMENT SYSTEM: GLOBAL GEOPOLITICS, DE-DOLLARISATION, AND CROSS-BORDER SETTLEMENTS

Why In News?

The weaponisation of the U.S. dollar and the disconnection of sanctioned Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) have prompted nations across the Global South and BRICS to establish alternative interbank messaging and settlement rails.

What Is SWIFT?

Financial Messaging, Not Fund Custody: Established in 1973 and headquartered in La Hulpe, Belgium, SWIFT is a secure financial messaging cooperative, not a bank, clearing house, or currency settlement depository.

Standardized Telecommunication: SWIFT assigns every financial institution a unique Business Identifier Code (BIC) and standardizes transaction messages through syntax protocols (such as ISO 15022 and ISO 20022), transmitting payment instructions, letters of credit, and securities trades.

Scale: The network connects more than 11,500 banking organizations and securities institutions across over 200 countries and territories, processing over 59 million financial messages daily.

Regulatory Oversight: As a Belgian cooperative society, SWIFT is governed by Belgian and European Union law and is supervised by the G-10 central banks, making it directly vulnerable to geopolitical 

sanctions enacted by the European Union and the United States.

Why Is The Global South Seeking Alternatives To SWIFT?

Geopolitical Weaponisation of Finance: The exclusion of Iranian banks (2012, 2018) and major Russian financial institutions (2022) demonstrated that SWIFT's self-proclaimed political neutrality can be overridden by Western foreign policy mandates.

Secondary Sanctions and Extraterritoriality: The Countering America's Adversaries Through Sanctions Act (CAATSA) and unilateral sanctions regimes allow the United States to penalize third-party commercial banks that clear non-dollar trade through Western correspondent banking networks.

High Transaction Costs and Settlement Latency: Traditional correspondent banking via SWIFT involves multiple intermediary banks, charging correspondent fees, foreign exchange spreads, and taking 2 to 5 business days for cross-border settlement.

Strategic Autonomy and De-Dollarisation: Emerging economies seek sovereign insulation to protect critical import supplies (crude oil, fertilizers, and defense equipment) from external payment freezes. 

What Are The Major Alternatives To SWIFT?

China's Cross-Border Interbank Payment System (CIPS): Launched in 2015 by the People's Bank of China (PBOC), it provides both financial messaging and actual clearing and gross/net settlement services for cross-border transactions denominated in Chinese Yuan (RMB). 

Russia's System for Transfer of Financial Messages (SPFS): Developed by the Central Bank of Russia (CBR) in 2014 following annexation sanctions over Crimea, SPFS serves as a domestic equivalent to SWIFT's messaging syntax.

Iran's SEPAM (System for Electronic Payments Messaging): Established by the Central Bank of Iran (CBI) to replace SWIFT for domestic electronic financial messaging following sanctions.

Europe's Defunct INSTEX (Instrument in Support of Trade Exchanges): Created in 2019 by France, Germany, and the UK as a non-dollar, non-SWIFT Euro-denominated clearing mechanism to sustain humanitarian trade with Iran following the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

How Is India Navigating Cross-Border Payment Diversification?

Structured Financial Messaging System (SFMS): Domestically, India operates the SFMS, developed by the Institute for Development and Research in Banking Technology (IDRBT), which handles all intra-bank and inter-bank messaging for NEFT and RTGS independent of SWIFT.

International Trade Settlement in Indian Rupees (SRVA): In July 2022, the Reserve Bank of India (RBI) issued an operational circular allowing overseas trade invoicing and settlement in Indian Rupees (INR) through Special Rupee Vostro Accounts (SRVA) opened by foreign banks in authorized domestic dealer banks.

Globalizing Fast Payment Systems (UPI Linkages): The NPCI International Payments Limited (NIPL) has successfully operationalized bilateral payment corridors connecting India's Unified Payments Interface (UPI) with Singapore’s PayNow, UAE’s AANI / Jaywan, Mauritius, and Sri Lanka.

Wholesale and Retail Digital Rupee (e₹) Pilots: The RBI is exploring cross-border interoperability for its sovereign Central Bank Digital Currency (CBDC-W) to settle cross-border bilateral oil and merchandise invoices without incurring foreign currency conversion friction.

What Are The Structural Bottlenecks Facing SWIFT Alternatives?

Inconvertibility and Strict Capital Controls: The Chinese Yuan is not fully convertible on the capital account, and strict capital controls by the PBOC constrain foreign commercial banks from holding massive offshore Yuan reserves.

Severe Bilateral Trade Asymmetries and Currency Accumulation: Bilateral national currency settlement arrangements flounder when bilateral trade balances are heavily lopsided.

• Example: India-Russia Rupee-Ruble Settlement (2023–2024), where Indian crude oil imports from Russia caused Russian exporters to accumulate billions in Indian Rupees inside Special Rupee Vostro Accounts that could not be repatriated or deployed into Russian goods due to low Indian exports to Russia (Source: Ministry of Commerce and Industry)..

Threat of Secondary Western Sanctions: Commercial banks in neutral emerging economies refuse to integrate directly with Russia's SPFS or clear non-compliant trade for fear of losing access to the U.S. clearing system (CHIPS).

Network Effects of the SWIFT Ecosystem: Replicating a network connecting over 11,500 institutions presents insurmountable switching costs for multinational corporations and commercial lenders.

Way Forward 

Promote Multilateral Cross-Border Central Bank Digital Currencies (CBDCs): Expand multi-entity platforms like Project mBridge to integrate emerging economies' sovereign digital currencies, replacing slow correspondent banking with distributed atomic settlement.

• Project mBridge, is a blockchain-based wholesale central bank digital currency platform designed for instant, low-cost cross-border payments. It bypasses traditional intermediary banks to eliminate high fees and long settlement delays.

Establish Cross-Border Payment Linkages for Fast Payment Systems (FPS): Bilateral interoperability of real-time national retail payment switches lowers transaction costs and builds de-dollarized corridors for remittances and tourism.

• Example: Project Nexus establishing a standardized multilateral network connecting instant payment systems across Southeast Asia and India.

Diversify Foreign Exchange Reserves into Non-Western Assets: Central banks must diversify sovereign reserve portfolios away from G7 government bonds into physical gold, bilateral currency swap lines, and multi-currency clearing units.

Standardize ISO 20022 Financial Messaging Globally: Alternative messaging networks (such as India's SFMS and China's CIPS) must fully harmonize data dictionaries with the global ISO 20022 standard to enable seamless interoperability without relying on SWIFT's proprietary messaging network.

Conclusion

Although alternatives like CIPS, SPFS, and CBDC pilots offer regional protection against unilateral sanctions, replacing SWIFT requires deep capital markets, fully convertible currencies, and trusted multilateral clearing institutions.

Source: THEHINDU