SWIFT losing speed?

[OrmontUS]

On of the great trading and political advantages that the US has had over the past decades is its control over the SWIFT financial processing system (similar to what we would call “bank routing numbers” domestically in the US) as well as the agreement to settle many types of international debts in terms of US Dollars. Among other consequences is the financial advantages of foreign countries and businesses to hold large US Dollar reserves.

https://edition.cnn.com/2022/06/22/energy/russia-oil-exports…
https://edition.cnn.com/2022/06/23/asia/xi-jinping-brics-sum…

Chinese leader Xi Jinping, who spoke at a business forum ahead of the virtual summit Thursday with leaders from the BRICS economic bloc of Brazil, Russia, India, China, and South Africa, portrayed the world as being at a critical juncture as it struggled to recover from the pandemic amid what he termed new “security challenges.”

Xi set the tone for a virtual summit with leaders from major emerging economies in a pointed speech Wednesday evening, in which he decried sanctions as “weaponizing” the global economy and urged unity in the face of financial challenges.

**** Putin added that Russia’s system for messaging between financial institutions is open to connecting banks from the five countries, and that Moscow is finding new ways to transact without relying on currencies such as the dollar or the euro. ****

“Together with BRICS partners, we are developing reliable alternative mechanisms for international settlements,” Putin said.

In his address, Putin accused the West of neglecting “the basic principles of [the] market economy” such as free trade.

Russia is also ramping up oil exports to China and India, which have been snapping up barrels at a hefty discount. China’s crude imports from Russia soared to a record level in May, ousting Saudi Arabia as the country’s top supplier.

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It has been clear for some time that China would, one day, set up an alternative financial system to support their New Silk Road initiative, but I suspect the current political/financial turmoil is giving them an incentive to move the non-Western major traders from a USD to “other” financial network to an RMB to “other” one.

Jeff

[qazulight]

It has been clear for some time that China would, one day, set up an alternative financial system to support their New Silk Road initiative, but I suspect the current political/financial turmoil is giving them an incentive to move the non-Western major traders from a USD to “other” financial network to an RMB to “other” one.

Jeff,

This is one of three mega trends I have been watching for 10
years or more. Things were going smoothly.

Then they were not.

(Three megatrends: Energy transition, dollar
reserve currency status and labor scarcity)

For years I have been pounding the table that the disparity between nominal GDP and PPP shows the artificial disparity between the value of the U.S. dollar as trading marker and the value of the U.S. dollar as representative of the U.S. gross domestic product. The SWIFT system, along with the U.S. navy and the U.S. Marines has kept this 20 percent anomaly in place since 2014, the year China grew to have the largest GDP based on the Purchasing Power Index.

The rising interest rates are helping establish the power of the U.S. dollar, and while I have not looked, I am guessing the value has risen both in the dollar index and the trade weighted dollar index. On the other hand, this strength allows exporters, like China to increase competitiveness in the dollar economy, even when faced with labor shortages and rising energy costs.

Cheers
Qazulight

[bjurasz]

I strongly believe the Chinese are trying to use their digital Yuan crypto currency to replace SWIFT for commerce on their New Silk Road. It can transact over mobile devices. The currency is convertible to local currencies via GPS identification of region. Etc.

[Hawkwin]

weaponizing" the global economy… we are developing reliable alternative mechanisms for international settlements," Putin said.

So these countries are assuming that Putin et. al. would be LESS LIKELY to weaponize such a transfer system than the US?

Good luck with that. They better hope they never get cross him or otherwise make him mad.

[bjurasz]

So these countries are assuming that Putin et. al. would be LESS LIKELY to weaponize such a transfer system than the US? Good luck with that. They better hope they never get cross him or otherwise make him mad.

I think this is one area where a currency like Bitcoin makes a ton of sense. Because things like that can’t happen. Good luck getting international trade settled on Bitcoin however.

[Hawkwin]

Good luck getting international trade settled on Bitcoin however.

Even if you could, there are not likely enough Bitcoins for the system to work. Total value of all mined Bitcoins (using today’s price) is roughly $500 billion. Something like $5 trillion is facilitated via SWIFT on a daily basis. Even if 1/10th of SWIFT traffic moved to a Bitcoin exchange, that would eat up the entire amount of existing Bitcoin - and likely result in massive swings in value and exchange rates.

Besides, SWIFT is just a messaging system - it doesn’t actually move the money. Money still moves via the wire or some other system. One could have a non-US ‘SWIFT’ and the money still be transferred in Dollars (as many of the existing SWIFT alternatives already do). Also, even if another messaging system exists, each individual financial institution would have to be willing to accept valid transfer of assets based on the communication. A lack of a prior security record should lead any financial institution to hesitate in adopting such a program.

Lastly, a different system would not be free. There are fees for SWIFT and likely economies of scale. Any new and smaller system would likely have greater costs.

https://www.investopedia.com/articles/personal-finance/05051…

[NajdorfSicilian]

Accepting payments in RMB is all well and good until they devalue their currency by two-thirds overnight, as they did in the 90s.

[SuisseBear]

Besides, SWIFT is just a messaging system - it doesn’t actually move the money. Money still moves via the wire or some other system.

Quite. Money actually moves through correspondent banks and ultimately central clearing institutions, Fedwire and CHIPS for the Dollar (Target for the euro).

Instructions to correspondent banks are often sent by SWIFT but could also go by letter, telex, e-mail or carrier pigeon. Or an alternative messaging system, which Russia and China are now demonstrating. The public focus on rather anonymous SWIFT serves to take focus off stricter rules for correspondent banks…

Btw, while the Ruble went down at the time of the Ukraine invasion, it is now HIGHER than prior to that: https://www.marketwatch.com/investing/currency/rubusd (switch to one year). Somehow the sanctions are not quite working as advertised yet.