![]() SWIFT initially resisted sharing its proprietary data with U.S. government can monitor third-party compliance with sanctions. SWIFT is also a vehicle through which the U.S. As of April 2022, the dollar accounted (by value) for 41.8 percent of payment instructions transmitted by SWIFT, the euro for 34.7 percent, the British pound for 6.3 percent, the Japanese yen for 3.1 percent, and the Chinese renminbi for 2.1 percent. Messages sent via the system instruct participating banks to debit and credit customer accounts not just in dollars but also in other currencies. SWIFT, founded as a cooperative in 1973 by 239 banks from 15 countries, is headquartered outside Brussels and incorporated under Belgian law. SWIFT’s components are its messaging platform, computers to validate and route messages, and a set of messaging standards. Banks receiving these messages debit and credit customer accounts, again following standardized instructions. 3 Standardization minimizes costs of translation and the need to confirm the identity of counterparties and customers. ![]() SWIFT does not actually move money it is simply a messaging system banks use to send instructions, using standard codes and formats, to banks in other countries. Start with SWIFT, which is currently enjoying its 15 minutes of fame. This may mean relying more heavily on nonfinancial measures insofar as financial sanctions eventually become less effective. ![]() Thus, countries such as the United States that employ financial sanctions should prepare for the development of alternative financial arrangements in China and possibly elsewhere. The situation could change faster if lent additional impetus by Western sanctions. However, these remain somewhat limited alternatives-for the moment. It explores whether Russia and other countries might be drawn toward this parallel international financial universe and what economic and political implications this has-for the United States, for its geopolitical rivals, and for global economics and politics.Ĭhina is making strides in fostering cross-border use of the renminbi and building a renminbi-based interbank payments system that can serve as an alternative to SWIFT and Western clearinghouses. This note investigates how far China has gone in creating alternatives to SWIFT, Western banks, and the dollar. Specifically, countries are looking to China, which has large internationally active banks, has created its own clearinghouse for cross-border transactions and is embarked on a campaign to encourage broader international use of its currency, the renminbi. Such options could include building a substitute for SWIFT to send instructions regarding cross-border interbank transactions identifying financial counterparties other than Western banks with which to do international business and platforms other than Western clearinghouses through which to make payment and finding a vehicle other than the dollar for denominating and executing transactions. These developments have led Russia, as well as other countries contemplating whether they might find themselves in the same position, to explore alternatives. 1 These sanctions bar Russian banks from using SWIFT (the Society for Worldwide Interbank Financial Telecommunications) to facilitate cross-border payments, prohibit banks from doing most forms of business with Russian entities, and freeze assets held abroad by the Central Bank of Russia in the form of treasury securities and bank deposits. In response to Russia’s attack on Ukraine, the United States and a coalition of cooperating countries imposed harsh financial sanctions on the Russian government, corporations, and individuals. In the wake of unpredicted sanctions levied against Russia, will China be able to advance its own efforts to challenge US dollar dominance and promote alternatives to SWIFT? While its progress has been limited to date, how might dynamics evolve in the coming months and years as the global financial system responds to recent geopolitical shocks? In the inaugural Marshall Paper, Barry Eichengreen explores how China’s efforts to build alternatives to SWIFT will be impacted by the war in Ukraine. Inspired by the work and legacy of Andrew Marshall, the founding director of the Office of Net Assessment, the Papers will be rigorous yet provocative, continually pushing the boundaries of intellectual and policy debates. ![]() The Marshall Papers is a new essay series edited by Jude Blanchette of CSIS and Hal Brands of SAIS that will probe and challenge the assessments underpinning the U.S.
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