India holds the key to a global shift away from Swift
RBI is now in talks with its counterparts in the US and Hong Kong, besides the Society for Worldwide InterBank Financial Communications (Swift), the global financial messaging system, on the prospects of launching digital cross-border settlements. The goal is to make global payments faster and cheaper for both individuals and companies. This is not just forward-looking move but a logical one, too, especially since India appears to have done the hard yards on launching a central bank digital currency or CBDC.
With a robust domestic payments system in place to help people move money instantly and cheaply, the attraction of a CBDC for resident Indians is limited. Where India’s CBDC holds considerable promise is in cross-border payments. For individuals and companies into global trade and services, moving funds across countries is not only costly but also painfully slow.
To make cross-border payments, they must use the Swift platform, which relays financial messages between banks. Since both banks must approve the transfer, it isn't completed instantly, as with UPI, or even within a short time, as with the National Electronic Fund Transfer (NEFT) system. Over time there has been a growing feeling that Swift’s transaction costs are far too high.
A CBDC could address this problem as the transaction be settled primarily between two central banks, with an intermediary bank involved only at the end of the transaction. In the wake of economic sanctions against Russia, including the freezing of its central bank’s assets, there have been informal talks among a few countries about working on an alternative system for cross-border payments. Though there hasn't been much headway on the matter, one option would be to enter into
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