On the margins of history. The fate of SWIFT and the dollar has been sealed

This week, the international payment system SWIFT, from which Russian financial organizations were disconnected in the spring of 2022, came up again on the agenda. The head of the Central Bank, Elvira Nabiullina, warned about the growing risks of this system of international payments, which many countries still use, while simultaneously thinking through alternatives. Mail.ru Finance found out what will happen next with SWIFT and how the new systems will affect cross-border capital flows.

What are we talking about?

“Risks have emerged in using the established international payment infrastructure, and many countries are thinking about alternative, their own versions of cross-border payment mechanisms,” said the head of the Bank of Russia, Elvira Nabiullina, in an interview with RIA Novosti.

Russia created its own Financial Message Transmission System (SPFS) in 2014 to replace SWIFT in settlements with friendly countries.

“We propose to join it ,” said the head of the Central Bank of the Russian Federation and added that 159 foreign participants from 20 countries have already joined it.

“Several other countries have similar infrastructure. We are discussing the interaction of such platforms, but the interest and technical readiness of our partners are important here,” Nabiullina said.

Dedollarization

At the same time, a second process is taking place: the share of the dollar in international payments is decreasing. The number of settlements in the world in Chinese yuan has doubled over the past year. The yuan started 2023 with a share of 1.9%.

And now the share of the Chinese currency in international payments in November 2023, according to the latest SWIFT data, increased from 3.6% in October to 4.61% in November 2023 and as a result, the yuan took fourth place in the world ranking, pushing the yen to fifth place (the share of the Japanese currency decreased from 3.91% to 3.41%).

The share of the US dollar in the world decreased from 47.25% in October to 47.08% in November after a historical record of 48.03% in August, the euro - from 23.36% to 22.95%, the pound sterling - from 7 .33% to 7.15%.

“This is all connected - the transition to national currencies and to the settlement infrastructure, which cannot be affected by sanctions,” Nabiullina noted.

According to the head of the Central Bank of the Russian Federation, “cross-border settlements with many countries have become more complicated, because the risk of secondary sanctions has increased.” This leads to the creation of alternative payment methods.

“Businesses in all countries are working on this. If a business is interested in developing economic, trade, and investment relations, and the established system of international payments becomes risky, then it is clear that an active search for alternative opportunities begins,” explained the head of the Central Bank of the Russian Federation.

According to Russian businessman Oleg Deripaska, international transaction volumes in Chinese yuan will exceed the volume of transactions in euros in four years. “And at this point the sanctions can be considered a completed exercise,” he predicts.

Avoid risks

“The use of SWIFT carries risks associated with cybersecurity and leaks of banking data, which are caused by both the vulnerabilities of SWIFT itself and the security systems of individual banks,” Antonina Levashenko, head of the Russian Center for Competence and Analysis of OECD Standards RANEPA , told Mail.ru Finance .

But these risks are not unique, and cybersecurity issues will be relevant for any network, she said. At the moment, there is no outflow of financial organizations from SWIFT: in 2021-2022, message traffic in SWIFT increased by 6.6%.

The main task that SWIFT performs is to provide a unified standard for the exchange of financial settlement messages, so that banks and other financial institutions can communicate with each other about monetary transactions in the same language. “If there are many such standards, then banks will not be able to effectively exchange financial messages,” the economist believes.

Alternatives to SWIFT exist, although they are not global. In Russia there is SPFS, which unites organizations from 20 countries. At the same time, the problems of covering banks and other organizations with separate solutions remain. In this sense, there is currently no effective network capable of completely replacing SWIFT.

Antonina Levashenko

Head of the Russian Center for Competence and Analysis of OECD Standards, RANEPA

SWIFT has been operating for half a century, uniting over 11 thousand financial organizations and shareholders from different countries, including the Russian division.

“The system is widespread all over the world, but in addition to its advantages, SWIFT is not without its disadvantages,” says Tatyana Belyanchikova, Ph.D., Associate Professor of the Department of Global Financial Markets and Fintech at the Russian Economic University. G. V. Plekhanov.

In her opinion, now, due to growing geopolitical disunity and contradictions between the countries - the founders and shareholders of SWIFT - the shortcomings of the system are appearing “more and more often.” Among the disadvantages:

- exclusion from the system of calculations of countries based on geopolitical confrontation,

— financial isolation of competitors.

The economist recalled that several national payment systems are already operating in the world. Countries are joining the Russian SPFS system, which “has already proven itself to be a reliable and technologically advanced system” with great prospects; the Chinese CIPS financial message transmission system is successfully operating.

These are not payment systems, but rather financial message transmission systems, interbank telecommunication systems, and so on. These are systems where accounts are not opened by their participants, where monetary claims and obligations are not settled. As a result, security and convenience come to the fore, primarily associated with the standardization of such messages.

Tatiana Belyanchikova

Ph.D., Associate Professor, Department of Global Financial Markets and Fintech, Russian Economic University named after. G. V. Plekhanova

As a result, countries choose the most convenient and safe system, as do commercial banks servicing international trade transactions and money transfers. “Therefore, alternative systems to Swift have great potential,” the economist believes.

Taking into account the fact that China and Russia - the first and fifth economies of the world in terms of purchasing power parity - provide a significant share of global commodity turnover and global supplies of goods and raw materials, there is growing interest in the ruble and yuan and in financial information transmission systems that work with such currencies.

Place for blockchain

“Indeed, SWIFT as an organization and as the personification of the previous centralism in international financial transactions simply does not keep up with real events,” said economist Vladimir Rozhankovsky, managing director of Trade123.

“Numerous confirmations in the banking chain of command for international payments look like an anachronism,” says the economist.

Now the largest payment system Western Union is entering into direct negotiations with Ripple Labs with the aim of using the blockchain of the token of the same name as a base for lightning-fast transfer of financial assets and payments. Singaporean startup Thunes unashamedly declares itself as a direct competitor to SWIFT, and its initially low transaction volumes a year ago have shown steady growth throughout the period.

Conclusion: if in the next year or two SWIFT does not radically revise its payment logistics and does not speed up the transfer of financial settlements, then even outside the context of geopolitics, it will find itself on the margins of history.

Vladimir Rozhankovsky

economist

“This information is for informational purposes only and does not constitute an individual investment recommendation.”