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Relevance: GS-II (IR) | GS-III (Economy) | Source: The Hindu

The News: To protect themselves from US financial sanctions, countries in the Global South (like the BRICS nations) are trying to reduce their reliance on the US Dollar. They are aggressively building new financial networks to trade directly in their own local currencies, bypassing the Western-controlled SWIFT system.

1. The Global Hunt for Alternatives

Different countries are testing out their own technologies to replace Western banking networks.

  • Project mBridge: A high-tech blockchain network connecting the central banks of China, Thailand, and the UAE. It allows them to instantly trade using digital currencies (CBDCs), completely ignoring traditional banks.
  • China’s CIPS: Launched to make the Chinese Yuan a global currency, this system allows international banks to clear global trade payments directly in Yuan.
  • Russia’s SPFS: When Russian banks were banned from SWIFT in 2022, they survived using this homemade messaging system, which is now successfully linked with Iran’s banking network.

2. India’s Strategy: The Rupee Route

India has avoided joining China’s CIPS network, choosing instead to build direct, country-to-country systems.

  • Direct Trade with Russia: India set up a direct payment link with its biggest oil supplier. Today, an incredible 96% of all India-Russia trade happens entirely in Rupees and Roubles.

Value Box: Key Financial Terms
SWIFT vs. Settlement SWIFT is just a secure messaging app for banks—it only sends instructions, not actual money. Systems like China’s CIPS handle both the messaging and the physical movement (settlement) of funds.
Vostro Accounts (SRVA) An RBI-backed system where a foreign bank opens an account in an Indian bank to hold Rupees. This allows them to buy and sell goods with India directly, without needing US Dollars.
BRICS Pay A proposed digital payment ecosystem meant to connect the domestic fast-payment systems of BRICS countries (like India’s UPI and Brazil’s Pix) to bypass Western networks.

Practice MCQ

Q. Consider the following statements regarding international payment systems:

  1. The SWIFT network directly settles and clears financial transactions between global central banks.
  2. A Special Rupee Vostro Account (SRVA) allows foreign banks to maintain Rupee balances in India to facilitate bilateral trade.

Which of the statements given above is/are correct?

(a) 1 only     (b) 2 only     (c) Both 1 and 2     (d) Neither 1 nor 2

Answer: (b) 2 only
Hint: Statement 1 is incorrect because SWIFT is strictly a financial messaging system; it does not clear or settle actual funds. Statement 2 is correct and represents the core mechanism of India’s de-dollarisation strategy with Russia.
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