What are the alternatives to SWIFT, and how are they faring? Explained
Multiple wars and U.S. weaponisation of the dollar through financial sanctions are making countries in the Global South think of bypassing the so-far universally accepted SWIFT system for inter-country payments
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Context
Recent Summit discussions highlight a growing push among Global South nations to develop alternatives to the Western-dominated payment system, driven by concerns over the 'weaponization' of the US dollar through sanctions. While India reportedly advocated for linking Central Bank Digital Currencies () for cross-border payments, this was not included in the final . The article examines existing alternatives like China's , Russia's , and the , assessing their progress and limitations in challenging the dollar's hegemony.
UPSC Perspectives
Economic
The search for alternatives highlights the vulnerabilities of a unipolar global financial architecture heavily reliant on the US dollar. De-dollarization, a recurring theme in UPSC Mains, is driven by the 'weaponization' of the dollar through sanctions, which disrupts trade and threatens the economic security of non-aligned nations. The article details several emerging mechanisms: China's , aiming to internationalize the Renminbi, and Russia's , developed as a direct response to Western sanctions. Furthermore, the potential of Central Bank Digital Currencies () in cross-border trade, as proposed by India within , represents a significant technological leap. , despite the recent exit of the (BIS), demonstrated the technical feasibility of a multi- platform for peer-to-peer settlements, bypassing traditional correspondent banking networks (often dollar-centric). UPSC aspirants should understand the mechanics of these alternative systems, their current scale compared to established networks like or , and the challenges they face in achieving widespread global adoption.
International Relations
The push for alternative payment systems is deeply intertwined with changing global geopolitics, particularly the rise of minilateral groupings like . The 's emphasis on increasing trade in national currencies reflects a collective desire within the Global South for strategic autonomy and financial sovereignty. The development of bilateral mechanisms, such as the robust rupee-rouble trade settlement infrastructure between India and Russia (facilitated by banks like Sberbank), demonstrates practical workarounds to Western sanctions. However, the exit of the from , reportedly due to concerns over sanction evasion, underscores the geopolitical friction surrounding these initiatives. For UPSC Mains (GS-2), this represents the shifting global balance of power, where economic tools are increasingly used for geopolitical ends. Aspirants must analyze how institutions like the (specifically the inclusion of the Renminbi in the basket) influence the acceptance of alternative systems like , and how India balances its strategic partnership with the US against its energy and defense ties with Russia in this complex financial landscape.
Governance
From a regulatory and governance perspective, the shift towards alternative cross-border payment systems presents significant challenges for central banks worldwide, including the (RBI). Integrating s across different jurisdictions requires complex harmonization of legal frameworks, data privacy standards, and anti-money laundering (AML) regulations. The implementation of a system like demands a shared understanding of monetary sovereignty and the technical capacity to manage custom-built blockchains. While bilateral arrangements like the India-Russia rupee-rouble trade mechanism provide immediate relief, they require constant regulatory oversight by the to manage currency volatility and balance of trade issues. UPSC questions could focus on the role of central banks in navigating this transition, balancing the need for secure, efficient cross-border transactions with the imperative of maintaining financial stability and adhering to international regulatory standards.