Decoding the 'Swift' payment system: Why it may crop up in Modi-Putin talks

Prime Minister Modi and Russian President Putin are set to hold key bilateral talks in Moscow today to discuss a wide range of issues as part of the 22nd India-Russia annual summit

Prime Minister Narendra Modi is set to hold key bilateral summit talks with Russian President Vladimir Putin in Moscow on Tuesday, marking his first trip to the country since its invasion of Ukraine in 2022.

A wide range of key subjects will be discussed during the high-level talks as part of the 22nd India-Russia annual summit, for which Modi arrived in Russia on Monday.

One of the focal points during the talks could be devising an alternative payment system between the two countries, as Russia struggles to carry out its business operations since it was blocked from the international payment system ‘Swift’ (Society for Worldwide Interbank Financial Telecommunications) after the invasion of Ukraine.

 

Soon after Putin ordered Ukraine’s invasion, Western nations blocked several Russian banks’ access to Swift in a bid to hurt its businesses and target its trade.

What is the Swift Payment System?

Swift is a non-state actor that serves as a core part of the global financial services infrastructure. Headquartered in Belgium, Swift was founded in the 1970s with the mission to facilitate cross-border payments via its messaging network, its official website says.

In 1977, the system went live, replacing the Telex technology that was then in widespread use. At present, more than 200 countries are part of this payment system, which services more than 11,000 institutions around the world that use it to send trillions of dollars every day.

In 2014, Swift launched its first-ever local joint venture (Swift India) to serve Indian users.

Alternative to Swift Payment System

Russia is encouraging alternative mechanisms, including the use of cryptocurrencies among its businesses, as it tries to deal with the impact of the ban on its economy.

According to a report by Reuters on July 3, Russian central bank Governor Elvira Nabiullina said that the Brics grouping of countries is exploring the development of an alternative payment system to replace Swift. The proposed Brics Bridge payment system would bridge the member countries' financial systems; however, it would take time to execute, she added.

India is one of the founding members of Brics, which stands for the grouping between Brazil, Russia, India, and China, founded in 2006. South Africa became a member in 2010.

This year, Saudi Arabia, Egypt, Ethiopia, Iran, and the United Arab Emirates were admitted as new members of the organisation.

What is Brics-Pay?

In 2018, the Brics grouping announced the Brics-Pay project - a joint venture between the five initial members to develop a digital payments platform. The project aims to provide a “secure” mechanism for businesses and consumers to facilitate transactions in their local currency, the official website of Brics Pay says.

South Africa, which presided over the Brics summit in August 2023, maintained that the Brics payment system would not replace the international system Swift but would focus on strengthening trade in local currencies.

At the conclusion of the summit in Johannesburg, the bloc’s leaders said that stakeholders would be tasked with conducting a thorough analysis of the system and asked to submit a report in a year.

India-Russia Trade in FY24

On July 5, Foreign Secretary Vinay Mohan Kwatra said that India-Russia bilateral trade reached $65 billion in the financial year 2023-24, driven by energy cooperation between the two countries. According to the data, Indian imports from Russia are close to $60 billion, while exports remain at $4 billion.