In the wake of the Russia-Ukraine war, US and other western countries disconnected Russia from the global payment messaging system SWIFT (Society for Worldwide Interbank Financial Telecommunication). SWIFT comes in picture to send messages between the banks.
After that, the bank will make payment in Indian rupees at prevailing exchange rate.
Once the importer’s payment is credited to the Indian bank’s USD Nostro account in the US bank, the payment will be transferred in dollar to the exporter’s bank in India. If we take the case of a Japanese company importing from India, when the Japanese importer makes a payment in yen, the Japanese bank will debit yen and credit US dollar in its USD Nostro account in the US bank. Apart from this, the banks of both the countries need to have USD Nostro account in American bank for payment in dollar. In the current SWIFT system, banks of the importing and exporting countries need Nostro accounts of both currencies in each other’s country for the settlement of payments. This step is a cause of worry for several nations as SWIFT system is controlled by Western nations, but finding an alternative to SWIFT is not an easy task.
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