Foreign Currency Settlement System

The Foreign Currency Settlement System (FCSS) is a newly launched financial infrastructure in India’s Gujarat International Finance Tec-City (GIFT City), designed to facilitate the real-time or near real-time settlement of transactions in foreign currencies within the International Financial Services Centre (IFSC). Announced and inaugurated by Finance Minister Nirmala Sitharaman at the Global Fintech Fest 2025, the system marks a landmark development in India’s ambition to strengthen its cross-border financial capabilities and establish GIFT City as a premier global financial hub.

Background and Context

GIFT City, located in Gandhinagar, Gujarat, serves as India’s first International Financial Services Centre (IFSC). It aims to bring onshore various international financial transactions that traditionally occur through offshore centres such as Hong Kong, Singapore, or London. The launch of the Foreign Currency Settlement System aligns with this goal by enabling foreign currency transactions to be processed and settled directly within the GIFT IFSC ecosystem.
Previously, settlements of transactions in foreign currencies—such as the US dollar, euro, and pound sterling—by entities operating in GIFT IFSC were routed through correspondent banking arrangements involving multiple intermediaries. This traditional method often led to delays ranging between 36 to 48 hours, added operational costs, and increased exposure to cross-border regulatory risks.
The FCSS addresses these challenges by allowing settlements in multiple foreign currencies to occur locally and in real time, thereby improving liquidity management, operational resilience, and compliance under the Payment and Settlement Systems Act, 2007 (PSS Act).

Establishment and Regulatory Framework

The International Financial Services Centres Authority (IFSCA) formally authorised CCIL IFSC Limited (CIL) to operate the FCSS under Section 7 of the PSS Act, 2007. This authorisation empowers CIL to manage a payment and settlement infrastructure dedicated to foreign currency transactions within the GIFT IFSC.
The IFSCA also notified the Bye-laws, Rules, and Regulations drafted by CIL, which collectively form the legal and operational framework for the FCSS. These rules govern various aspects, including:

• Transaction settlement procedures for multiple foreign currencies.
• Risk management norms to ensure secure and efficient processing.
• Compliance obligations for participating institutions.
• Transparency and reporting standards consistent with international financial norms.

This regulatory structure ensures that FCSS operates as a safe, reliable, and transparent platform while maintaining strict oversight by the IFSCA.

Key Features and Functional Mechanism

The FCSS operates as a payment system that allows institutions within GIFT IFSC to settle their foreign currency obligations in a centralised and streamlined manner. Its key features include:

• Real-time or near real-time settlement of transactions in foreign currencies.
• Local clearance capability, reducing reliance on foreign correspondent banks.
• Integration with IFSC banking units (IBUs) and other authorised financial entities.
• Enhanced liquidity management through faster fund movement.
• Regulatory compliance and operational oversight by the IFSCA.

In its initial phase, Standard Chartered Bank’s India unit has been selected to handle US dollar clearance operations. This move lays the foundation for similar arrangements in other major currencies in subsequent phases.

Significance for GIFT IFSC and the Indian Financial Ecosystem

The introduction of the FCSS holds profound implications for the growth and global positioning of GIFT IFSC. It places India among a select group of international financial centres—such as Hong Kong, Tokyo, and Manila—that possess local infrastructure for foreign currency settlements.
The system enhances the attractiveness of GIFT IFSC by:

• Reducing transaction time and cost, enabling same-day or instantaneous settlement.
• Improving operational efficiency for global banks, asset managers, and corporates operating from GIFT City.
• Strengthening India’s financial sovereignty, as transactions no longer depend entirely on offshore systems.
• Facilitating cross-border trade and investment, promoting ease of doing business.

Furthermore, by providing a robust and regulated settlement mechanism, the FCSS contributes to greater investor confidence and systemic stability within the Indian financial market infrastructure.

Alignment with India’s Fintech and Digital Payment Vision

During the launch event, Finance Minister Nirmala Sitharaman emphasised India’s emergence as a major global fintech power. She noted that India ranks third globally in the number of fintech firms and leads the world in digital payment volumes, processing over 18,580 crore UPI transactions worth ₹261 lakh crore in the financial year 2024–25.
The FCSS complements this broader digital finance narrative by extending India’s fintech leadership into the international domain. By enabling seamless foreign currency settlements within GIFT IFSC, the system reinforces India’s vision of building a comprehensive and self-reliant financial ecosystem that competes on par with global counterparts.

Benefits and Strategic Implications

The establishment of the FCSS brings several strategic benefits to India’s financial sector:

• Enhanced global integration: By creating a domestic infrastructure for foreign currency settlement, India strengthens its linkages with international capital markets.
• Reduced foreign dependency: The system minimises exposure to foreign clearing institutions, mitigating currency and jurisdictional risks.
• Boost to trade and investment: Quicker settlements improve transaction certainty and liquidity for businesses engaging in cross-border trade.
• Regulatory clarity: The IFSCA’s oversight ensures compliance, transparency, and adherence to global best practices.
• Promotion of innovation: The presence of an advanced settlement mechanism encourages fintech innovation within GIFT IFSC.

Additionally, the FCSS is expected to attract global financial institutions seeking efficient settlement services, thereby enhancing India’s competitiveness as a destination for international banking, capital markets, and fintech operations.

Future Prospects and Expansion

The FCSS is envisaged as a dynamic system that will expand in scope and capability over time. Future developments may include:

• Inclusion of additional foreign currencies, such as the euro, pound sterling, and yen.
• Integration with cross-border payment networks for greater interoperability.
• Introduction of advanced risk management systems leveraging fintech innovations.
• Potential participation of global clearing banks to facilitate diversified settlement options.

As the system matures, it is likely to catalyse the next phase of GIFT City’s evolution into a fully functional, globally competitive financial ecosystem comparable to established centres in Asia and Europe.