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The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global payment messaging system whereby information is sent securely and accurately, such as money transfer instructions around the world. Over 11 000 SWIFT member institutions sent roughly 33,6 million transactions per day using this network in 2019. These transactions are coded, thus, making them secure and reliable. The SWIFT headquarters are in Belgium and have offices in the United States (US), Brazil, and even South Africa. SWIFT is a member-owned co-operative. Members pay a once-off joining fee and thereafter annual support charges based upon their classes or their share of ownership. SWIFT was created to serve as a neutral party between members and banks. They, however, have been criticised for taking sides. For example, they have recently cut off Iranian banks from using the system as US sanctions have kicked in on Tehran. This is not the first occurence and may not be the last. The US has been tracking transactions on SWIFT since 9/11 and cites the International Emergency Economic Power Act (IEEP) to substantiate their sanctions on what they deem to be terrorism risks. This, naturally, can have devastating consequences on a country’s economy.
There is speculation that the US may use similar tactics on China as a consequence for human rights abuses against the Uyghur people and repression of political dissents in Hong Kong, and as a foreign policy tool to rebalance the power dynamics between the two. The Chinese state-owned bank, Bank of China (BoC) is warning other national banks to switch to its domestic messaging system in fear of these sanctions. This seems somewhat sensational and far-fetched. The Chinese economy is far too important for the US, as much as they would hate to admit it. It is no secret that China is picking up pace in the global economic race in a bid for currency sovereignty and this may be one of the quickest ways to do that.
China launched their Cross-border Interbank Payment System (CIPS) in 2015 to begin internationalising the use of the Yuan. This system will allow global banks to clear cross-border Yuan transactions onshore instead of offshore. As of the end of June 2020, CIPS reports that roughly 980 financial institutions in 96 countries and regions have used the system and in 2019, they reported having processed 135,7 billion Yuan (R 334,4 billion) per day. CIPS still largely relies on SWIFT but over time, it may be able to function independently.
In conjunction to CIPS, China has introduced e-RMB and four cities including SuZhou, ShenZhen, and ChengDu are currently trialing this digital currency. The intention is not to override WeChat Pay or Ali Pay, two of China’s major digital payment platforms, but rather to ensure currency sovereignty and promote it across its borders. Again, this will slowly bypass the SWIFT system as well as the New York-based Clearing House Interbank Payments System (CHIPS). The question of security and privacy has also arisen. Chinese state media has assured members and organisations that e-RMB will be fully traceable for authorities to monitor the flow of money. This is both good news and bad news. Good news, as it may help curb the flow of money in the illicit economy such as tax evasion or money laundering. The bad news, however, for example in the case of casino operators who rely on high-rollers and those cash flows. This is because the high rollers are very protective of their privacy and offshore accounts; this transparency will affect their capital investment destinations.
China’s movement towards currency sovereignty is still in its early stages. Keep in mind that the RMB (Yuan) needs to compete with the US Dollar, the Euro and the British Pound. It is unlikely that the RMB will have such an equal footing in the next decade or so. Their efforts could open doors for other countries and the potential within this, could mean a shift in the global financial economy all together. For example, when considering BRICS (Brazil, Russia, India, China, and South Africa; the five biggest emerging national economies), the CIPS and e-RMB system could provide an alternative to the current financial system which has been criticised for being Eurocentric and marginalising developing nations and emerging economies. Another benefit is the traceability of this currency since it is meant to be transparent. This could result in more avenues wherein the illicit funds are transferred. As you can see there are various pros and cons and the outcomes, benefits and future of this system are rather subjective. This could either be a great opportunity or a huge risk in the international banking system.
Selycia considers herself a jack of all trades, with her interests and abilities widespread. She wants to pursue as many of them as she can in her lifetime. She believes life is not meant to be a straight “normal” line but a beautiful journey of segues. Selycia is one of the permanent writers on The Art of Politics team.