Russian & Chinese Alternatives For SWIFT Global Banking Network Coming Online

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SPFS and CIPS provide a SWIFT alternative in global banking transaction

SWIFT (Society for Worldwide Interbank Financial Telecommunications) has long been the global banking transfer mechanism of choice, launched in 1973. It provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment. SWIFT also sells software and services to financial institutions, much of it for use on the SWIFTNet network, and ISO 9362. Business Identifier Codes (BICs, previously Bank Identifier Codes) are popularly known as “SWIFT codes”. However there is a problem – the system itself is prone to be under the demands of the United States, meaning that should the US request SWIFT services be dropped from dealing with specific banks or even countries, the network will typically follow suit. This has become increasingly politicized, what ought to be a payments network system has ended up being a service that will do as requested and be driven by US economic and trade policy. This has happened when Washington issued sanctions against countries like Russia, but also Iran, Turkey, Cuba and others. Over 11,000 financial institutions in more than 200 countries are connected to the network, meaning that when Washington uses it to cut financial transaction ability the impact is immediate and global.

Dealing with the American politicization of SWIFT has taken time in terms of developing an alternative banking system unconnected to SWIFT and without the need to use US corresponding banks. This is SPFS, or System for Transfer of Financial Messages, and has been under development by Russia since 2014. It is now up and running.

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Elvira Nabiullina, the head of the Central Bank of Russia (CBR) has stated that It is open for external connection, we are developing it for our trade partners if they want to join. This work is already ongoing and banks of several countries are going to join, test connections already exist. We think it will be developing. The Russian alternative network operates the same standards as SWIFT. It’s convenient for those joining it as they do not have to change their internal mechanisms. Moreover, not just banks but also large businesses can join directly and some have already done so”.

In Russia, 18 percent of money transfers are going through SPFS. Banks can therefore choose what system they want to use and “quickly switch” in case of any risks, according to Nabiullina.

In April, the CBR said it had signed agreements with two non-Russian banks and was holding talks with five more. Joining the network allows foreign players to bypass Western sanctions, enabling them to cooperate with Russian companies hit by the restrictions. In Russia itself, just over 500 participants, including major Russian financial institutions and companies, have already joined the SPFS network.

Another alternative is China’s CIPS (China International Payments System), which several Russian banks have also connected to, especially to ease banking operations between the two countries, according to Vladimir Shapvalov, also of the CBR, who said at last week’s SPIEF conference: “As for the cooperation on payment systems, a range of banks are already connected to CIPS, allowing to facilitate payments routing procedure.”

These developments mean that for Russia-China trade, and progressing externally from there, alternatives to SWIFT are coming on stream and will eventually have an impact on global trade. At present the combined SPFS and CIPS have about 10% of the global market share of financial institutions using their networks, but this can be expected to increase over the next few years to challenge US financial transfer dominance and ability to avoid sanctions via cutting off transfer access.

 

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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