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What is Project Nexus that RBI has signed up for?

Explained | Economics | Mains Paper 3: Indian Economy
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From UPSC perspective, the following things are important :

Prelims level: Project Nexus; Fast Payments Systems (FPSs);

Mains level: Significance of Fast Payments Systems (FPSs) via Project Nexus

Why in the news? 

The Reserve Bank of India (RBI) has become a part of Project Nexus, a global initiative aimed at facilitating instant cross-border retail payments by connecting domestic Fast Payments Systems (FPSs).

What is Project Nexus?

  • Project Nexus is conceptualized by the Innovation Hub of the Bank for International Settlements (BIS).
  • It is the first BIS Innovation Hub project in the payments area moving towards live implementation.
  • Aim: To enhance cross-border payments by connecting multiple domestic instant payment systems (IPS) globally.
  • The Reserve Bank of India (RBI) has joined Project Nexus, aiming to interlink India’s Unified Payments Interface (UPI) with the Fast Payments Systems (FPSs) of Malaysia, the Philippines, Singapore, and Thailand.
  • The platform is designed to be extended to more countries in the future.

About Fast Payments Systems (FPSs):

Fast payment systems (FPSs) are real-time payment systems that enable the immediate transfer of funds between accounts. Some key points about FPSs:

  • FPSs allow for the fast, secure, and low-cost processing of retail transactions, ensuring funds are immediately available to the recipient.
  • FPSs are becoming increasingly popular globally, with over 100 jurisdictions now having access to fast payment systems. They foster competition among payment service providers and serve as a gateway to additional financial services.
  • The design of FPSs is important, as they have public good characteristics. Factors that contribute to greater adoption of FPSs include central bank involvement, inclusion of non-bank providers, more use cases, and more cross-border connections.
  • The Payment and Settlement Systems Act, of 2007 regulates and supervises payment systems in India. It designates the Reserve Bank of India has the authority for that purpose and all related matters.

What are the benefits of the platform?

  • Standardization: Project Nexus standardizes the way IPS connect to each other, simplifying the process.
  • Single Connection: Payment system operators can connect to the Nexus platform once, allowing them to reach all other countries on the network without building custom connections for each.
  • Instant Payments: Enables cross-border payments from sender to recipient within 60 seconds in most cases.
  • Cost Efficiency: Provides near-zero cost for sending and receiving payments.
  • Growth Acceleration: Significantly accelerates the growth of instant cross-border payments by leveraging existing instant payment systems.

Way forward: 

  • Expand Membership: Actively encourage more countries to join Project Nexus, thereby increasing the global reach and impact of the platform. (Indonesia is joining in the near future)
  • Enhance Technological Infrastructure: Invest in robust and scalable technological infrastructure to support seamless integration and interoperability among different FPSs.

Mains PYQ:

Q What is Cryptocurrency? How does it affect global society? Has it been affecting Indian society also? (UPSC IAS/2021)

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