India must hedge against Weaponised Payments and UPI doesn’t cut it
| AUTHOR | Anupam Manur |
| DATE | August 1, 2026 |
| CATEGORIES | Geoeconomics Economic Policy |
The Economist has a nice article on the weaponisation of the payment systems by the US, as part of increased use of economic statecraft by the US.
Payment systems weaponised
America’s top trade official recently complained that Brazil’s Pix instant-payment system unfairly disadvantages Visa and Mastercard and went on to do what seems like second nature now - threatened tariffs in response. But, Brazil didn’t buckle. Even President Lula’s right-wing rivals closed ranks around the homegrown system. This is a good indicator that the global financial system is splintering and for all the talk of dedollarisation, payments is where this might be first occurring.
Treasury Secretary Scott Bessent has described a world in which access to the dollar and the American economy is “no longer unconditional.” Stripped of euphemism, that is a decision to weaponise the plumbing of global finance, which is basically to treat the rails through which money moves as an instrument of coercion. And when it is very clear that the US is on this path, each country will obviously become guarded, as they could easily be the next target.
For India, the instinctive answer has been to talk about the rupee and “de-dollarisation.” That is the wrong layer to worry about. The dollar’s dominance as a reserve and invoicing currency is real, sticky, and not going anywhere soon. But, the immediate vulnerability lies in the pipes and specifically in one pipe: SWIFT, the interbank messaging network that tells banks where money should go. This is the chokepoint Russia discovered in 2022, and one that the United States can squeeze quite easily.
UPI is not the answer
When the conversation turns to hedging against SWIFT, India’s UPI is often mentioned as the country’s brave attempt to shake up the established order. But, we must be honest about the limits of UPI’s success. UPI is a genuine marvel, and its extension to nine other countries is a real achievement. But UPI is a retail fast-payment system, which means that it moves money between people and merchants. But, this is not where the coercion happens.
American leverage sits one storey up, at the level of interbank messaging and correspondent banking. Having a solution at the retail layer, however impressive, does not insulate India from a squeeze applied at the wholesale layer. That is the case for building alternative institutional architecture. What is required is a messaging and settlement layer that does not route through a single American-controlled chokepoint. And it is the case for building it with Europe.
Do it with Europe
Europe is the natural partner because Europe is exposed to precisely the same risk. The chair of the European Parliament’s economic-affairs committee has warned that a hostile America could cut off access to payments infrastructure; the European Central Bank’s Christine Lagarde has argued that Europeans need digital payments “under our control.” Europe has the will and the balance sheet, but its reflex is to build walled, Europe-only systems. India brings what Europe lacks: a proven template for interlinking national systems across borders, real scale, and reach into the developing economies. Two big economic entities can co-designing open, interoperable architecture and this can be a far more attractive proposition than either building alone.
The urgency comes from the alternative. If the open world dithers, the default non-American rail will be Chinese. China’s CIPS is already scaling fast, and Beijing is explicitly prioritising the expansion of its payment network over the harder task of currency convertibility. A world in which the only escape hatch from American rails is a Chinese one is a world India should refuse to accept.
One important caveat though. This mechanism should be a hedge and not a forced alternative. The point is optionality and redundancy: removing the single point of coercive failure, not walling India off from a dollar system that still serves it well. Fragmentation is genuinely costly. The hope should be that by building genuine alternatives, SWIFT must be forced to come to the table to create interoperability between the different systems. A fragmented global payments system is too expensive for everyone. .
Any India–Europe effort must therefore begin modestly and technically, extending the kind of instant-payment interlinking India already pursues through the BIS’s Project Nexus, standardising on ISO 20022 (the format SWIFT itself now uses), and building the governance and trust layer first. India has already made digital public infrastructure its diplomatic signature, at the G20 and beyond. This is the logical next chapter. America has decided that its financial rails are a weapon. The rational response is to acknowledge this and think about hedging strategies.