A SWIFT Kick in Russia’s Assets Isn’t Enough

March 8, 2022 Updated: March 10, 2022


As Russia’s invasion into Ukraine continues, among the U.S. responses is the denial of selected Russian banks’ access to the Society for Worldwide Interbank Financial Telecommunications (SWIFT) international financial messaging network.

Keep in mind that the SWIFT system has been a critical component of U.S. foreign policy since 1973, as has the dollar’s reserve currency status in the world. The dollar makes up almost 60 percent of foreign currency reserves, and the vast majority of trade transactions in the world involve a U.S. financial institution.

Crashing the Russian Economy

This partial SWIFT denial has certainly had an effect on Russia’s economy. But it may not be as tough or as effective as intended. After all, the United States is buying about 650,000 barrels of oil from Russia every day at inflated prices.

Additionally, Visa, Mastercard, American Express, and PayPal have shut down their services in Russia. The upshot is that credit and debit cards issued outside of Russia won’t work, nor will those issued within Russia work abroad.

What’s more, the Russian economy continues to implode. The value of the Russian ruble is less than a penny, their stock markets are closed, and Russian trade in the world has greatly diminished.

All of these factors and events add up to economic warfare, making it quite difficult for Russian businesses and consumers, as well as for the Russian government.

But surely, one would think, a guy like Vladimir Putin, a man who ran the KGB for Soviet Russia and who has run the country for the past 22 years could have, and would have, anticipated such responses from the United States?

Of course, he has—and therein lies the problem.

New Financial System Emerging

One may wonder if the U.S. responses that Putin knew would be coming are actually helping Russia and China usher in a new international payments system to compete with, or even replace, the U.S. dollar-based system.

Looking at both China and Russia’s current and past behavior, it certainly looks that way.

For example, at the moment, both nations still rely on the SWIFT system, even to trade between themselves. As late as 2020, 60 percent of Chinese exports to Russia were still denominated in the dollar. But at the same time, both have developed their own payment settlement systems.

China’s Cross-Border Interbank Payment System (CIPS) began in 2015. Russia’s System for Transfer of Financial Messages (SPFS) was developed in 2014. Linking those financial systems would be relatively easy, with either nation’s currency.

That’s just the beginning—and things are changing fast.

Russia and China Proactive

At the time of writing, Russia might issue a card to replace Visa, Mastercard, and PayPal for domestic transactions. Yep, Putin–and China’s Xi Jinping­–likely knew or suspected that such a move was coming and planned accordingly.

Furthermore, it appears that some form of China’s digital yuan or e-yuan may play a central role in their new emerging financial system. The e-yuan is the world’s first central bank digital currency (CBDC), which is a digital replacement for the paper yuan.

Presumably, its value would be guaranteed by China’s central bank, the People’s Bank of China (PBOC). There is also the possibility that for international trade, some sort of gold standard may apply to the e-yuan to make it even more attractive.

Epoch Times Photo
A worker at the front desk of Prince Ski Town Hotel checks the phone behind a sign saying “digital renminbi (e-CNY) is accepted” in Zhangjiakou, China, on Dec. 4, 2021. (Andrea Verdelli/Getty Images)

In hindsight, Beijing’s decision to debut the e-yuan at the Olympic Games last month makes a lot of sense. Recall that some viewed the e-yuan’s debut as a failure because of the low number of e-yuan transactions and amounts compared to other payment options.

The bottom line, though, is that the Chinese have proof of concept and global exposure. The e-yuan worked and the world now knows it exists. And even though China’s Alipay and WeChat lead the country’s digital payments, at some point, the PBOC will demand ultimate control of all payments.

But which countries would likely accept e-yuan in place of dollars?

Internationalizing the Digital Yuan

Actually, there are many that may well do so because they don’t like the United States. Others may do so with the right incentives from Beijing.

Recall that China’s Belt and Road Initiative (BRI, also known as “One Belt, One Road”) involves up to 142 nations in Asia, Africa, the Middle East, and Latin America. Over the past several years, China has been very busy making bilateral currency agreements with many of its BRI partner nations, not to mention the recent bilateral currency agreement signed by Russia as well.

Plus, most if not all BRI client nations are deeply connected by trade and indebted to Beijing. Thus, China is in a position to offer more loans, better terms, new projects, and other advantages that those indebted nations need and want. In short, the BRI has created a captive global market for an e-yuan-based system.

The SWIFT Impact Raises Risk of a Wider Conflict

The biggest benefit of course is that while both Russia and China still need the SWIFT system to process their cross-border transactions with each other and much of the world, that soon may not be the case.

When that occurs, the United States will no longer be able to interfere with sanctions as it does now. From the Russian and Chinese perspective, it can’t come soon enough.

When this new Sino-Russian financial system comes online, it will create deep lines of political and financial division that haven’t been seen since the Cold War. It also will create dangerous dynamic power differentials between China and the United States that America isn’t prepared to meet, and for which China is preparing militarily.

One can only hope that the new reality doesn’t escalate past that level into a very hot war.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

James Gorrie
James R. Gorrie is the author of “The China Crisis” (Wiley, 2013) and writes on his blog, TheBananaRepublican.com. He is based in Southern California.