GIFT City Introduces Foreign Currency Settlement System

Context: A Foreign Currency Settlement System (FCSS) was inaugurated at Gujarat International Finance Tec-City (GIFT City) by the Union Finance Minister. This initiative is designed to enhance global commerce and capital inflows into India.

Understanding the Foreign Currency Settlement System (FCSS)

The FCSS is a core payments infrastructure established within the GIFT-International Financial Services Centre (IFSC). Its primary function is to facilitate immediate, or near-instantaneous, settlement for transactions and trades conducted in foreign currencies.

• Operational Mechanism: The system streamlines cross-border payments by eliminating the conventional need for routing through a chain of international correspondent banks. This drastically cuts down the settlement cycle from the traditional 1-2 days to almost real-time.
• Governing Framework: The FCSS functions under the regulatory oversight of the International Financial Services Centres Authority (IFSCA). Its legal foundation is provided by the Payment and Settlement Systems Act of 2007.
  • The IFSCA is a statutory body created under its own dedicated Act. Its mandate is to oversee the development and regulation of financial products, services, and institutions within all International Financial Services Centres in India.
• Initial and Future Scope: At launch, the system will process settlements in three major global currencies: the U.S. Dollar (USD), the British Pound (GBP), and the Euro (EUR). There is a clear roadmap to incorporate additional foreign currencies in the future.
• Strategic Importance: The establishment of the FCSS elevates GIFT City’s status, placing it in the league of other major global financial hubs such as Hong Kong, Tokyo, and Manila that possess the capability for domestic foreign currency settlement.

A Snapshot of GIFT City

GIFT City is a visionary, greenfield project developed as a smart city and business district located in Gandhinagar, Gujarat.

• Its core objective is to build a top-tier financial and technology hub, with the dual aim of drawing back offshore financial services to Indian soil and attracting international investments.
• The city’s layout is divided into two distinct areas:
  1. The Special Economic Zone (SEZ), which houses India’s premier IFSC.
  2. The Domestic Tariff Area (DTA), which supports a wide range of ancillary businesses and infrastructure.