Foreign Currency Settlement

The Union Finance Minister recently launched the Foreign Currency Settlement System (FCSS) at Gujarat International Finance Tec-City (GIFT City) in October 2025. This landmark development enables real-time foreign currency settlement within India, significantly reducing the previous 36–48 hour delays caused by reliance on correspondent banking.

By establishing a local infrastructure for foreign currency settlement, GIFT City joins the ranks of top global financial hubs, offering faster, safer, and more efficient international transactions.

What is Foreign Currency Settlement?

Foreign currency settlement is the process through which banks and financial institutions finalize cross-border payments and interbank settlements for foreign exchange transactions. Traditionally, Indian banks had to depend on foreign correspondent banks, leading to delays and higher costs.

With the Foreign Currency Settlement system, these transactions are now settled locally using a hub-and-spoke model where member banks maintain accounts with a local settlement bank.

Currently, the system supports US dollar transactions, with plans to expand to multiple currencies. Operated by CCIL IFSC Ltd and regulated by the International Financial Services Centres Authority (IFSCA) under the Payment and Settlement Systems Act, 2007, the Foreign Currency Settlement system streamlines forex settlement while reducing operational risks.

How Foreign Currency Settlement Improves Currency Transactions

The Foreign Currency Settlement system bypasses the traditional multi-leg Nostro account system, reducing settlement times from days to mere seconds. This enhancement strengthens liquidity management and lowers settlement risk, making GIFT City a more attractive destination for global investors.

Key features of FCSS include

• Real-time forex settlement: Transactions are completed instantly, enhancing efficiency.

• Partner bank: Standard Chartered Bank manages US dollar settlements.

• Software development: Indian Financial Technology & Allied Services ensures secure operations.

• Settlement mechanism: Supports interbank foreign exchange settlement directly without intermediaries.

By adopting a multi-currency payment system, the Foreign Currency Settlement infrastructure also facilitates cross-border currency transfers and international payment processing, strengthening India’s foreign exchange market.

About GIFT City

GIFT City is India’s first special economic zone (SEZ) focused on global finance, insurance, fintech, and capital markets. Spanning 886 acres between Ahmedabad and Gandhinagar, the city is designed to provide a world-class financial settlement infrastructure comparable to London, Singapore, and Dubai.

Established in 2007 and regulated by IFSCA since 2020, GIFT City operates under a liberal framework, allowing foreign currency transactions, tax incentives, and regulatory ease. The city hosts nearly 1,000 entities, including banks, insurers, asset managers, and fintech companies.

Purpose Behind GIFT City

• Before GIFT City, Indian companies often relied on financial hubs like Singapore or Mauritius for offshore finance, resulting in revenue outflow and reduced global influence.

• GIFT City was created to offer a secure, onshore alternative, providing the same flexibility as offshore centers while keeping financial activity within India.

• This aligns with India’s vision to become a global financial hub by facilitating currency trading, FX settlement, and international transactions locally. The Foreign Currency Settlement system is central to achieving this objective.

Benefits of the Foreign Currency Settlement System

The launch of FCSS brings multiple benefits for India’s financial ecosystem:

1. Reduced Settlement Delays: Moves from 36–48 hours under correspondent banking to seconds in real-time foreign currency settlement.

2. Improved Liquidity Management: Allows banks to manage funds efficiently, reducing idle capital.

3. Lower Settlement Risk: Direct interbank settlement reduces dependency on foreign banks.

4. Enhanced Operational Efficiency: Streamlined payment settlement improves the workflow of international transactions.

5. Global Competitiveness: Places India among a few countries with local USD settlement infrastructure in GIFT IFSC.

Additionally, Foreign Currency Settlement supports forex clearing and settlement, facilitates secure methods for cross-border fund settlement, and strengthens India’s global payment infrastructure.

Notable Achievements of GIFT City

GIFT City has emerged as a powerhouse for innovation in financial services:

• Home to India INX and NSE International Exchange, offering extended trading hours.

• Hosts India’s first aircraft and ship leasing units.

• Global firms like Morgan Stanley, HSBC, and MUFG Bank operate here.

• Emerging hub for offshore derivatives, green bonds, and ESG funds.

These developments, coupled with real-time foreign currency settlement in GIFT City, make it a pivotal part of India’s financial settlement system and international finance ambitions.

Key Takeaways for SSC Aspirants

• Foreign currency settlement is now possible locally in India through GIFT City’s FCSS.

• FCSS reduces delays, enhances liquidity, and lowers settlement risk.

• GIFT City provides a world-class financial ecosystem for banks, fintechs, and investors.

• Understanding interbank settlement, cross-border payments, and FX settlement is crucial for SSC exams.

• SSC candidates should remember the role of IFSCA and CCIL IFSC Ltd. in regulating and operating FCSS.

Final Thoughts

The Foreign Currency Settlement System (FCSS) was launched at GIFT City in October 2025, enabling real-time settlement of foreign currency transactions. This system removes the 36–48 hour delays of traditional correspondent banking, making currency settlement faster and more efficient.

Using a local settlement bank hub, Indian banks can now conduct interbank settlements directly, initially supporting US dollar transactions. Regulated by IFSCA and operated by CCIL IFSC Ltd, FCSS strengthens India’s foreign exchange market and reduces settlement risk.

GIFT City, India’s first international financial hub, offers a world-class ecosystem for cross-border payments, FX settlement, and currency trading, boosting liquidity and operational efficiency. The FCSS marks a major step in India’s goal to become a global financial center.