22.48       ndian     onom
     Debt sWAP                                                Such funds, estimated to be sitting on a total
                                                         of $25 trillion, are eagerly looking to diversify into
     Exchanging one debt by another for a fresh term
                                                         higher yielding riskier assets. Any fast growing
     of repayment schedule at the same or usually
                                                         economy with open and liberal attitudes to foreign
     lower interest rates.
                                                         investments with opportunities for investment
     interest rAte sWAP                                  may face up the inflow of such funds. India is one
                                                         fit candidate today.
     Exchanging one debt of a particular interest rate
                                                              Such funds need to be studied and alllowed
     for another at lower interest rate.
                                                         entry cautiously as they bring in non-market and
     ProDuct sWAP                                        extraneous factors with them too, having potential
                                                         diplomatic, strategic and sovereign dangers to the
     Exchanging one product for the other as wheat for   host economies. In November 2007, the National
     milk (similar to barter).                           Security Advisor of India voiced apprehension
                                                         about such funds.
     The Society for Worldwide Inter-bank                    swiss formulA
     Telecommunication (SWIFT) is a messaging            Tariff cut formulae are either linear or non-
     network which connects banks and financial          linear. A Swiss formula is a non-linear formula.
     institutions across the world. International        In a linear formula, tariffs are reduced by the same
     transactions of the banks and institutions are      percentage irrespective of how high the initial
     ultimately based on this network. The network       tariff is. As opposed to a linear formula, in a non-
     was in news in India after the LoU (Letter of       linear formula, tariff cuts are directly or inversely
     Undertaking) related banking fraud occurred         proportional to the initial tariff rate.
     with the Punjab National Bank by February
                                                              In the Swiss formula, tariff cuts are
     2018. Meanwhile, the RBI has enforced (February
                                                         proportionally higher for tariffs which are initially
     2018) a new guideline under which all banks and
                                                         higher. For instance, a country which has an
     financial institutions of India need to link their
                                                         initial tariff of 30 per cent on a product will have
     core banking system to the SWIFT to protect
                                                         to undertake proportionally higher cuts than a
     themselves from occurrence of any future financial
                                                         country which has an initial tariff of 20 per cent
                                                         on the same product.
                                                              In the on-going multilateral trade negotiations
                                                         at the World Trade Organisation (WTO), it has
     Sovereign wealth funds (SWFs) are the foreign       been decided by all participating countries to use
     currency funds held by the governments of the       the Swiss formula for reducing import tariffs on
     world, specially in Asia and West Asia. After the   industrial goods. After a long-standing debate
     process of globalisation, freer capital movements   on the number of reduction coefficients to be
     to the developing economies had brought enough      used in the formula, a unanimous decision was
     foreign currencies to some economies. Earlier, such recently taken that there would be two sets of
     funds used to originate in Singapore and Norway     coefficients—one for the developed countries and
     but now we see china, Russia, and the Middle East   another for developing countries. A decision on
     emerging as the new SWFs economies.                 the value of the coefficient is yet to be taken.