Foreign Currency Settlement System

Finance Minister Nirmala Sitharaman launched the foreign currency settlement system at GIFT IFSC (Gujarat International Finance Tec-City) during the Global Fintech Fest 2025.

Need for the System

• Earlier Mechanism: Transactions in foreign currencies (USD, Euro, Yen) were settled through correspondent banking networks using Nostro accounts held abroad.
• Challenges:
• • Delay: Settlement took 36–48 hours.
  • Cost: High intermediary and liquidity costs.
  • Dependence: Heavy reliance on overseas clearing houses.
  • Risk: Vulnerability to global disruptions, sanctions, or SWIFT outages.
• Objective: To localise settlement infrastructure, reduce operational lag, and integrate India deeper into global finance.

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What is Foreign Currency Settlement System ? 

• It refers to the mechanism by which cross-border payments and transactions in foreign currencies are settled between banks or financial institutions. 
• The process involves conversion, clearing, and final settlement of payments in foreign currencies.

Key Features of the FCSS

• Structure:
  • Operates under the Payment and Settlement Systems Act, 2007.
  • Authorised by: International Financial Services Centres Authority (IFSCA).
  • Operated by: CCIL IFSC Ltd, a subsidiary of the Clearing Corporation of India (CCIL).
  • Technology Provider: IFTAS (Indian Financial Technology and Allied Services), a wholly owned subsidiary of the RBI.
• Functioning:
  • A local settlement bank, chosen via competitive bidding, acts as the central hub.
  • Member IFSC Banking Units (IBUs) open settlement accounts with this bank.
  • Inter-bank forex transactions are settled within seconds locally, bypassing multi-leg Nostro routes.
  • Initial currency: US Dollar (USD).
  • Initial settlement partner: Standard Chartered Bank.
  • Settlement time: Reduced from ~2 days to 4–5 seconds — enabling real-time gross settlement (RTGS) in foreign currencies.

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Economic Significance of the FCSS

• Financial Efficiency: Enables faster and cheaper cross-currency transactions, reducing dependency on foreign intermediaries.
• Liquidity Management: Enhances access to foreign currency liquidity for Indian and global banks operating within GIFT City.
• Strategic Autonomy: Strengthens India’s control over international payment infrastructure, reducing exposure to external sanctions or disruptions.
• Fintech Integration: Encourages fintech innovation in cross-border payments, blockchain, and AI-driven settlement analytics.
• Global Competitiveness: Helps attract foreign banks, FPIs, and fintechs to set up operations in India.

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