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UPSC Syllabus : Prelims: Indian Economy Mains : GS-III: Indian Economy |
What is Project Nexus?
- Project Nexus is conceptualized by the Innovation Hub of the Bank for International Settlements (BIS).
- Project Nexus is a significant international initiative that enables instant cross-border retail payments by interconnecting domestic instant payment systems (FPS).
Objectives of Project Nexus:-
- To enhance cross-border payments by connecting multiple domestic instant payment systems (IPS) globally.
- Project Nexus seeks to enable cross-border payments within 60 seconds in most cases.
Founding Members
- The founding members and first-mover countries of Project Nexus are:
- Malaysia
- Philippines
- Singapore
- Thailand
- India
Future Prospects:-
- In the future, Indonesia will also join the platform, further expanding its reach.
Agreement and Signatures
- An agreement relating to Project Nexus was signed by the Bank for International Settlements (BIS) and the central banks of the founding member countries in Basel, Switzerland.
- This agreement formalizes and advances the implementation of Project Nexus.
Bank for International Settlements (BIS) Founded: 1930 Owned by: 63 central banks Represented: About 95% of the world’s GDP Headquarters: Basel, Switzerland Representative Offices: Hong Kong SAR and Mexico City Objective: To promote international monetary and financial cooperation and act as a bank for central banks.
Key Functions Establishing global banking regulation:-
Forum for Central Banks:-
Banking Services:-
Promoting global monetary and financial stability:-
Collection and publication of monetary and financial data:-
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Role of Reserve Bank of India (RBI)
- The Reserve Bank of India (RBI) has joined Project Nexus to further its efforts to link India’s Unified Payments Interface (UPI) with Faster Payment Systems (FPS) of other countries.
- This initiative will support both person-to-person (P2P) and person-to-merchant (P2M) payments, thereby expanding the international reach of Indian payment systems.
Fast Payments Systems (FPS)
Key Faster Payment Systems Unified Payments Interface (UPI):
Immediate Payment Service (IMPS):
National Electronic Funds Transfer (NEFT):
Real Time Gross Settlement (RTGS):
International context
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Benefits of Project Nexus
1. Standardization of connections:
- Project Nexus standardizes the way instant payment systems (IPS) connect, reducing the need for custom connections for each new country.
- This simplification can lead to more efficient and faster implementation of cross-border payment systems.
- Example: Instead of India’s UPI creating custom connections with each country individually, UPI can connect to the Nexus platform once and instantly connect to multiple countries such as Malaysia, the Philippines, Singapore, and Thailand.
2. Instant cross-border payments:
- By interconnecting domestic IPS, Project Nexus enables cross-border payments to be completed within 60 seconds in most cases.
- Example: An Indian freelancer can receive payment from a client in Singapore almost instantly
3. Wider reach:
- A single connection to the Nexus platform allows access to all other countries on the network.
- This broader reach can help drive the adoption and growth of instant cross-border payments globally.
- Example: Once Indonesia connects to this platform, an Indian user can make an instant payment to an Indonesian recipient without the need for a new, separate integration.
4. Cost Efficiency:-
- Standardization and simplification of IPS connections can reduce operational costs associated with establishing and maintaining multiple bilateral connections.
- Example: Banks in the Philippines no longer need to maintain multiple bilateral connections with banks in different countries, significantly reducing their infrastructure and operational costs.
5. Improved Economic Integration:-
- Project Nexus promotes economic integration and cooperation at both regional and global levels, by connecting the payment systems of multiple countries.
Challenges Associated with Project Nexus
1. Technical Integration:-
- Integrating different FPSs from different countries faces significant technical challenges.
- Example: Integrating UPI with Malaysia’s FPS may face challenges due to differences in their technical infrastructure and protocols,
2. Regulatory compliance:-
- Each country has its own set of financial regulations and compliance requirements.
- Harmonizing these regulations can be a significant hurdle to facilitating cross-border payments.
- Example: India’s regulatory framework for payment systems may differ significantly from the Philippines.
3. Security concerns:-
- Ensuring the security of transactions and privacy of user data is paramount.
- Example: Cross-border payments may be targeted by cybercriminals, and protection against such threats requires strong security measures to prevent data breaches and fraud.
4. Infrastructure readiness:-
- Countries have different levels of technical infrastructure. Ensuring that all participating countries have the necessary infrastructure to support instant cross-border payments can be challenging.
- Example: If the banking technology of a country in the Nexus network is outdated, it can hinder the overall performance and reliability of the system, affecting the speed and security of transactions.
5. Cost and Investment:-
- The initial costs associated with setting up the infrastructure and systems required for Project Nexus can be high.
6. Coordination and Governance:-
- Effective coordination between multiple countries and organizations is essential to the success of Project Nexus.
- Establishing a strong governance framework to manage this collaboration can be complex.
Way Forward
Expand membership:
- Actively encourage more countries to join Project Nexus.
- Increase the global reach and impact of the platform.
Promote technical infrastructure:
- Invest in robust and scalable technical infrastructure.
- Support seamless integration and interoperability between different FPSs.