GIFT City, India's burgeoning financial and technology hub, is in the spotlight as officials engage with the Reserve Bank of India (RBI) to explore the establishment of a novel dollar payment system. This initiative aims to streamline and enhance the efficiency of transactions conducted in the US currency, potentially revolutionizing the way dollar-based transactions are processed.
Crafting a New Financial Ecosystem
At the heart of these discussions is the idea of introducing a payment system akin to the Real-Time Gross Settlement System (RTGS) specifically for dollar transactions. This move is spurred by the current time-consuming process involved in dollar transfers, where transactions from a bank's nostro account abroad to a subsidiary in GIFT City can take several hours.
A nostro account, for those unfamiliar, is an account a bank holds in a foreign country, denominated in that country's currency. The proposal under consideration suggests the creation of a singular 'settlement bank' within GIFT City. This bank would manage dollar balances and facilitate transactions, promising a more direct and expedited transaction flow.
The Clearing Corporation of India (CCIL) is identified as a potential facilitator for this RTGS-style mechanism, leveraging their vast experience in managing similar operations. This proposed system would focus on one-leg US dollar transactions without the need for counterparty guarantees or trades, marking a significant shift in the current operational framework.
GIFT City's Growing Global Stature
This development is part of a broader vision to elevate GIFT City into a global financial powerhouse. Notably, Finance Minister Nirmala Sitharaman's announcement last year, allowing direct listing of Indian companies at GIFT-IFSC exchanges, and the recent regulatory frameworks established for such listings, underscores the strategic importance of GIFT City in India's financial landscape.
Moreover, the entry of major global investors like the Abu Dhabi Investment Authority (ADIA), which plans to establish a $4.5 billion fund to invest in India through GIFT City, highlights the international financial community's growing confidence in this initiative. ADIA's in-principle approval to set up a branch marks it as the first sovereign wealth fund to invest in the tax-neutral finance hub, opening avenues for investments in Indian startups, debt securities, and equities.
A Magnet for Innovation and Investment
GIFT City's allure is not limited to financial services. The city is rapidly becoming a magnet for technology and innovation, attracting significant investments from leading companies like Paytm, which announced a INR 100 Crore investment to develop a global financial ecosystem, and Infibeam Avenues, which is looking to establish an AI hub.
The traction GIFT City is gaining among investors is evident from the success stories like the We Founder Circle (WFC) GIFT City Fund, which raised $10 million and onboarded over 250 investors, showcasing the city's potential as a vibrant ecosystem for startups and financial services alike.
As GIFT City continues to evolve, the proposed dollar payment system could be a game-changer, not just for the city but for India's ambition to position itself as a global financial hub.
