Alternative to SWIFT as global payment messaging system is not easy

In the current SWIFT system, banks of the importing and exporting countries need Nostro accounts of both currencies in each other’s country for the settlement of payments. Apart from this, the banks of both the countries need to have USD Nostro account in American bank for payment in dollar.

If we take the case of a Japanese company importing from India, when the Japanese importer makes a payment in yen, the Japanese bank will debit yen and credit US dollar in its USD Nostro account in the US bank. Once the importer’s payment is credited to the Indian bank’s USD Nostro account in the US bank, the payment will be transferred in dollar to the exporter’s bank in India. After that, the bank will make payment in Indian rupees at prevailing exchange rate. SWIFT comes in picture to send messages between the banks.

With SWIFT no more recognising payment messages sent by the Russian banks, no Russian bank can make payment in its Nostro account in the US bank. Therefore, rouble payment cannot be credited in dollars, making it impossible to make payments from Russia to other countries.

A currency exchange expert told Fibre2Fashion, “The US has economically paralysed Russia in the world market. China is also cautious because of its close relation with Russia and its tense relations with the US and the western world. Therefore, both the countries are pursuing an alternative payment system. SPFS (System for Transfer of Financial Messages) is used in Russia for payments. It can be used for international payments like SWIFT. Similarly, the Chinese system CIPS (Cross-Border Interbank Payment System) is also being used.”

India’s NPCI (National payment Corporation of India) also has its own domestic payment system RuPay which has shown its potential over the years by successfully executing crores of transactions daily domestically. However, it is yet not tested for international transactions.

Even if it were to be tested successfully for international transactions, it would not be easy for other countries to accept any other payment system by-passing the US dollar and SWIFT. For example, China and India may not agree to accepting either of their systems. Other countries outside the western world may also have some diplomatic issues mutually, therefore, acceptance for any alternative of SWIFT is not an easy task.

Fibre2Fashion News Desk (KUL)