Source: BS
Context: Finance Minister launched the Foreign Currency Settlement System (FCSS) at GIFT City’s International Financial Services Centre (IFSC), enabling real-time settlement of global currency transactions.
About Foreign Currency Settlement System:
What It Is?
- The FCSS is a real-time payment and settlement mechanism for transactions conducted in foreign currencies (initially in USD) within GIFT IFSC.
- It replaces the older correspondent banking model, which required multiple intermediaries and 36–48 hours to process global transactions.
Regulatory Framework: Under the Payment and Settlement Systems (PSS) Act, 2007, and regulated by the International Financial Services Centres Authority (IFSCA).
Operator: CCIL IFSC Ltd., a subsidiary of the Clearing Corporation of India Ltd. (CCIL).
Aim:
- To facilitate seamless, near-instant foreign currency transactions for entities operating in GIFT City.
- To reduce settlement risk, enhance liquidity, and boost India’s international financial competitiveness.
- To align GIFT City’s financial infrastructure with global best practices and support cross-border trade and investments.
How It Works?
- Under FCSS, each member bank’s IFSC Banking Unit (IBU) maintains accounts with a local settlement bank.
- Inter-bank foreign currency transfers are settled locally within GIFT IFSC, bypassing multi-leg Nostro account chains used in overseas settlements.
- The system processes real-time or near real-time settlements (4–5 seconds) instead of earlier 2-day lags.
- Operates under secure regulatory oversight ensuring compliance, transparency, and stability.
Key Features:
- Real-time or near real-time settlement in foreign currencies.
- Enhanced operational resilience and liquidity management within IFSC.
- Lower transaction cost and time, eliminating dependence on offshore intermediaries.
- Scalable multi-currency capability — initially for USD, with plans to include euro, yen, and pound sterling.
- Integration-ready architecture to support fintech, digital banks, and cross-border payment ecosystems.
