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US-led Western allies have removed some of the Russian banks from using SWIFT (Society for World-wide Interbank Financial Telecommunication), a secure messaging network that facilitates cross border payments to fund international transactions, as the US holds Russia accountable for invasion in Ukraine. Russia also blames the US-led NATO (North Atlantic Treaty Organisation) for instigating its invasion in Ukraine.
SWIFT was introduced in 1973 to replace an old Telex System that was operational since World War II but it was unreliable and not error-free. SWIFT is headquartered in Belgium, majorly run by US and European Banks. There are 3,500 banks and financial institutions that jointly own SWIFT. Western Allies are major observers of SWIFT, it follows Belgium law and EU decisions but the biggest data centre lies in Virginia, US.
Russia is also dependent on the SWIFT facility and is the second largest user of SWIFT followed by China and India. 300 Russian financial institutions are part of this messaging network. Removing Russia from the SWIFT network disrupts its financial system and access to cash via SWIFT.
When Russia invaded Crimea in 2014, the US had imposed SWIFT sanctions on Russia. Russia then independently built a system for “Transfer of Financial Messages” as an alternative to SWIFT facility but it failed due to some security issues.
In 2012, the European Union had imposed a SWIFT ban on Iran, and Iran had lost 30% of its international trade and oil export revenues. This had an adverse impact on India since Iran was India’s largest oil partner. Similarly, India’s defence supply can get adversely affected due to the induced SWIFT ban on Russia.
There is an impulse shown by developed nations to thrust upon economic sanctions quite often on developing countries. Such a deterrent inflicted by the US is not widely appreciated across the world as the affected country has to face repercussions in economic terms.
Therefore, it has become imperative for the developing countries to come up with an alternative by launching their own secured financial messaging system to reduce their dependency on SWIFT, keeping up the interests of their country without getting into any geopolitical conflicts. India and Singapore are planning to link UPI (Unified Payment Interface) and PayNow to facilitate financial transactions between them instantly. Bhutan has adopted UPI standards for its QR code. UPI is planning to expand in Nepal and in Middle Eastern countries. UPI technology is considered for export to other countries since UPI is a secure and instant payment system.
UPI was an initiative introduced in 2016 in the domestic payment market that helped India in emerging as the world’s largest real-time payment market and a global leader in UPI based transactions. UPI is developed as open and interoperable, an initiative of NPCI (National Payments Corporation of India) set up by Reserve Bank of India and Indian Banks Association.
UPI facilitates quicker payments to service providers using digital wallets. UPI can reduce transaction cost from 5% to 2%, it is faster and user friendly. UPI transactions have increased 13 times from 2018 to 2020, as per RBI’s report. In February 2022, 4.52 billion transactions took place through UPI worth Rs. 8.27 lakh crore. Transactions happen in a highly encrypted format that makes it very secure followed by factor authentication OTP mandated by RBI.
On the other hand, SWIFT conducts transactions of around $5 trillion daily. More than 11,000 global SWIFT member institutions sent an average of 40 million messages per day through the messaging network in 2021, marking an increase of 11.4% over 2020. SWIFT is successful as it continuously transfers different financial transactions in a secured manner.
Account to account real time transactions are gaining prominence in the US and Europe. Also, the need for automation of SWIFT to process huge transactional volumes is growing, although adding to an increased operational overhead. This is an opportunity for UPI to expand and revolutionise technology in the world with digital diplomacy going forward.
Even China has launched the Cross Border Interbank Payment System (CIPS) to lower down the dominance of dollar but CIPS is dealing in Yuan while the global payment system is largely driven in dollars.
A replacement of SWIFT will come if India collaborates with other countries with similar interests but it also requires a global sovereign backing to make it an effective, reliable, secure and scalable network to assist businesses and individuals to complete seamless and accurate business transactions.
Conclusion – The monopoly enjoyed by western allies by inflicting tougher sanctions puts the sovereignty of the strained nation at risk and damages its foreign policies. UPI expansion can allow better cooperation and improve business with other nations hence India can leverage the opportunity to influence the global world.
Also read: US, allies remove Russian banks from Swift in response to Moscow’s military operation in Ukraine
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.
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