Ukraine-Russia crisis: SWIFT is at the center of the global movement of money and the withdrawal of Russian banks from it could be a huge punishment for Russian President Vladimir Putin for attacking Ukraine. But it could provide an excuse to other geopolitical competitors, especially China, to promote digital versions of its central bank money in global trade and finance. This could weaken the global influence of the dollar. SWIFT, CHIPS and its dollar are the mainstays of the dominance of the US economy. The use of any of these weapons against Russia’s banking would convince China that it needed to find alternatives to all three to avoid US power.
US monitors cross border flow of funds with Swift
The Cooperatively Owned Society for Worldwide Interbank Financial Telecommunication (Swift) Systems is based in Brussels but has a data center in Virginia. With the help of this system, the US monitors the cross-border flow of funds. However, the actual maintenance and monitoring takes place in New York, where dollar-denominated payments are settled around the world.
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Clearing House Interbank Payments System (CHIPS) is a private club of financial institutions. Its 43 members settle claims worth $1.8 trillion daily using a pre-funded account with the US Federal Reserve. They all maintain US offices and are bound by US laws.
Chips are also America’s big power
Chips members such as BNP Paribas, Standard Chartered and others have paid fines of $13 billion over nearly two decades for violating sanctions related to Iran. Beijing is eyeing chips, a tool of America’s power. In a Canadian court battle to block the extradition of Huawei’s finance chief Meng Wanzhou to the US, the Chinese firm has questioned HSBC’s decision to process $100 million in Skycom transactions in New York. Huawei argued that since HSBC knew its links with its equipment selling partner Skycom in Iran, the bank should route the funds through a small offshore dollar clearing system in Hong Kong, to avoid pouring money into the US. Can go
China has the option of chips
To avoid the chips, China is gearing up with its Cross Border Interbank Payment System (CIPS), which settles international claims in yuan and could potentially run its own messaging network. CIPS is growing rapidly.
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