EYESHENZHEN  /   Opinion

SWIFT as a financial choke

Writer: Liu Jianwei  |  Editor: Jane Chen  |  From: Shenzhen Daily  |  Updated: 2022-03-07

On Feb. 26, the United States, along with some European countries and Canada, took the extraordinary step to cut key Russian banks away from the interbank messaging system, SWIFT, with the hope of excluding the country from the global financial system.

Let us first take a look at the SWIFT system. In order for an individual, a company, an institution or any other entity to wire money to a counter party across national borders, the sender will need the specific bank information of the receiver.

In 1973, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, was founded as an intermediary and executor of financial transactions. SWIFT designates a code to each member bank (most banks in the world are now members of SWIFT), and subsequently each and every branch of that bank.

With a bank code and an account number, it is very easy to conduct international financial transactions. SWIFT services are used to process some 42 million payment exchanges in more than 200 countries each day.

SWIFT was established as a member-owned institution for the financial community, but, contrary to its original objective, this is not the first time it has been wielded as a political weapon. In 2012, Iran was blocked out of SWIFT before Iranian banks were allowed to reconnect back to the system in 2016.

SWIFT, in essence, is a messaging system. It does not determine or prevent the underlying payment itself, but it is the most widely used and convenient one. Take the social network apps for instance: Anyone can easily create a Facebook- or WeChat-like online social platform, but with few contacts on your platform, it is hard to conduct meaningful networking. Yet you can still do messaging on it if you wish, like you would do with an alternative system to SWIFT.

In 2014, Russia set up its own domestic alternative to SWIFT, the System for Transfer of Financial Messages, or SPFS. China has also been operating a rival system named Cross-Border Interbank Payment System, or CIPS. Currently, both SPFS and CIPS do not yet have the support or international acceptance of SWIFT. However, given time, alternatives to SWIFT should and will prevail in the long run.

Powerful developed countries use any means available to gain additional political and economic advantages. A superpower creates entities to fulfill its own purposes, and if such an entity no longer serves its own interests, it leaves at will any time without bearing any consequences.

It is now high time China sped up the development of CIPS as the cross-border financial transaction alternative to SWIFT, like it did with the banking card system of UnionPay.

Credit and debit cards issued by banks in China used to run on Visa or MasterCard systems only, and later co-branded by UnionPay with one of them. Currently, with the maturity and sophistication of UnionPay, most banking cards issued in China operates on UnionPay only without creating any hindrance at all. UnionPay now also covers a wide range of points of sales internationally. You do not need a Visa or MasterCard to travel internationally: A UnionPay card will suffice.

(The author is an independent financial investor.)