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Al-Zaytouna Centre for Studies and Consultations has published an Arabic academic paper entitled “Do US Sanctions on Russia Contribute to Moving Away from the SWIFT System?,” by Prof. Dr. Muhammad Ibrahim Miqdad, a professor of economics and the head of the Palestinian Economists Syndicate, and Muhammad ‘Abdul Hadi Nasr, a doctoral researcher in economics at Bursa Uludağ University in Turkey.

The paper discusses the impact of the United States (US) and Europe using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system in international sanctions and the gradual shift from it to other alternatives.

The SWIFT system, established in 1973, uses standardized codes to identify banks and financial institutions, enabling secure and efficient transfer of payments and financial transactions, and facilitating the exchange of other related information.

The SWIFT system has also witnessed a plethora of technical developments over the years, including the complete migration to the SWIFTNet messaging network at the beginning of 2004. It was considered a unique development that allowed real-time messaging service, offering new services to new customers such as hedge funds, pension funds, broker dealers, as well as non-financial institutions.

The paper also indicates that one of SWIFT’s objectives is to avoid control or monopoly by any specific entity, and one of its basic rules is not to take sides with any of the member states. However, the US and European dominance has allowed them to impose international sanctions on countries that defy their policies, such as in the aftermath of Russia’s invasion of Ukraine in February 2021, where selected Russian banks, including Sberbank, were expelled from SWIFT to isolate the Kremlin economically and gradually drain the resources it pours into the military invasion of Ukraine.

The paper explains that under the dominance of the SWIFT system, the US dollar (USD) still holds the top position in terms of the international payments currency share, where in April 2023, USD had 59.74% share in payments value in SWIFT. Thus, the USD’s dominance makes the transition to alternative systems of global payment orders quite challenging, and that the possibility of Beijing and Moscow establishing a vital joint financial messaging system that enables them to dispense with the SWIFT system, is unrealistic.

The paper highlightes that despite hundreds of Russian banks adopting the System for Transfer of Financial Messages (SPFS) system, only a few international banks have done so, and many of them do not effectively utilize this system. Explanations for this limited adoption include concerns about system efficiency, limited operating hours, low participant numbers, not to mention the political and economic influence that Moscow may try to exert over foreign banks joining the alternative system.

The researchers observe that the role played by alternative systems to SWIFT, especially the Russian and Chinese ones, is still limited but growing over time. The strength of these alternative systems could increase if other BRICS countries join, potentially weakening the USD and increasing the likelihood of moving away from reliance on a single currency, instead favoring a basket of strong currencies and enhancing their local value.

The researchers suggest that together, the Russian SPFS and the Chinese Cross-Border Interbank Payment System (CIPS), could have a significant impact on the activation of a new international payment network that serves as a diversion from the Euro-US-controlled SWIFT. The Russian SPFS includes 423 banks in 23 countries, while the Chinese CIPS includes 1,452 banks or financial institutions in 185 countries, making them qualified to establish a new payment system, especially if the BRICS group was encouraged to adopt a single BRICS currency.

The paper notes that the Russian-Chinese alliance against Western sanctions could enhance China’s power and influence relative to the US, potentially reshaping the global balance of power. This shift could lead countries, companies and industries to settle their foreign transactions using local currencies through alternative payment systems instead of SWIFT. This could also lead to the emergence of new alliances that would affect the global economic landscape, impacting many major economies. The Russian-Chinese approach may encourage the Eurasian Economic Union and the Shanghai Cooperation Organization to coordinate and gradually move away from using the USD as the official exchange currency, relying on national currencies in transactions, basing financial reserves on their own currencies and adopting alternative systems to SWIFT. This would gradually make the US decrease its usage of SWIFT to impose sanctions on countries.

The paper concludes with a set of recommendations aimed at accelerating the search for an alternative to the SWIFT system and reducing the ability of Europe and the US to impose economic sanctions on political dissenters. The recommendations included pooling the efforts of countries affected by US sanctions to adopt a unified alternative system to SWIFT and integrating different national systems. The paper also urged the enhancement of parallel or anti-Western economic blocs like BRICS, Organization of Turkic states or others.

The paper also suggests a gradual move away from using USD for international payments, and encourages countries wary of Western threats or at risk of sanctions to dare and make decisions about issuing a unified currency and adopting an alternative system to SWIFT.

Click here to download:

>>Academic Paper: Do US Sanctions on Russia Contribute to Moving Away from the SWIFT System? (Arabic) (17 pages, 2.1 MB)

By: Prof. Dr. Muhammad Ibrahim Miqdad and Muhammad ‘Abdul Hadi Nasr. (Exclusively for al-Zaytouna Centre).

Al-Zaytouna Centre for Studies and Consultations, 9/8/2023

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