Russia, Other Countries Abandon SWIFT Payment Network And Establish Alternatives

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Op/Ed by Chris Devonshire-Ellis

Unhappiness with the manipulation by the United States of the global SWIFT payment network to effectively cut entire countries off from the global banking system has lead to an increasing number of alternatives being developed. SWIFT currently accounts for about 40% of all global currency transactions, yet has been used by the United States as a tap to turn on or off financial trade from countries it wishes to punish.

Two of these are Russia and Iran, who are coordinating efforts to unite the Russian financial messaging system and Iran’s SEPAM as an alternative to making payments through SWIFT for protection against third countries’ sanctions, Russian presidential aide Yury Ushakov told reporters on Friday.

“To protect bilateral trade and economic ties from the sanctions of third states, we are taking measures to expand direct settlements, use national currencies, and to establish interaction between the Russian financial messaging system and Iran’s SEPAM, as an alternative to making payments through SWIFT.” Ushakov said.

The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT, announced in November that it would sever ties with individual Iran-based banks for the sake of the “global stability of the system,” without elaborating.

The announcement came on the same day as the US Treasury Department imposed sanctions against the Iranian economy’s energy, banking and shipping sectors. Several days prior, the US had warned that SWIFT, like any other entity, must abide with the US sanctions falling under secondary US sanctions.

Russia and Iran are not the only countries looking at alternatives to US-controlled banking networks. Russia and China have also been looking at developing alternative systems. China’s CIPS is looking at coordinating with Russia’s SPFS to handle all Russia-China transactions, while the Eurasian Economic Union, with a trade GDP of US$5 Trillion, has effectively de-dollarized its trade by 70% with the aim to dump the US dollar entirely. Russia has also stated it will not conduct any sovereign borrowings in US$ from next year. The BRICS grouping of Brazil, Russia, India, China and South Africa has also announced that the BRICS New Development Bank will also move away from use of the US dollar in loans, and will introduce the BRICSPay system to allow nationals of their countries to make payments in their own currencies and also avoid the US dollar. Turkey is also looking at alternative payments systems.

It is unclear exactly what the impact on the US dollar will be. Washington seems unconcerned. However, the economies of China, Russia, India, Brazil, Iran and Turkey are significant. Should the trend continue, the dollar could be ousted as a global reserve currency. Both China and Russia have also been buying up significant quantities of gold, with calls for an alternative to the US system of currency backed by debt to be replaced with currencies backed by assets. There are scenarios, currently on the fringes of US dollar thought, that predict a crash in the value of the US dollar will occur. Again, Washington is apparently unconcerned and does not take such suggestions seriously. But what if the share of global trade did follow a de-dollarization path? There are some very smart people within the Governments of the anti-US dollar nations, and they do account for a very large chunk of total trade volumes. At present, the possibility of a US dollar crash remains theoretical. But the movements to dump the dollar and hoard assets instead meanwhile appears to be growing. The old adage “Hope for the best – but prepare for the worst” is, at the very least, when applied to the US dollar, a disconcerting one.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 27 years of operations in China and assists Russian and Foreign investors establish operations into the country. Please contact us at russia@dezshira.com or visit us at www.dezshira.com

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