Russian President Vladimir Putin and Chinese President Xi Jinping.
Some Russian banks have been banned from SWIFT, a cross-border messaging service for banks.
India was reportedly considering a Russian proposal to use the SPFS for payments in rubles.
Moscow is also working with Beijing to connect to the Chinese messaging system.
In the aftermath of Russia’s unprovoked invasion of Ukraine, some Russian bans were banned from SWIFT, the Belgium-based messaging service that lets banks around the world communicate about cross-border transactions. The ban has hampered cross-border transactions for Russia’s trade and financial systems, isolating the country economically.
Now, both Russia and China are looking to establish alternatives to the US dollar hegemony.
Russia is touting an alternative ruble-based payment system called the System for Transfer of Financial Messages (SPFS). The system was set up in 2014. In late April, the country’s central bank said it would start keeping the names of participants secret.
China’s Cross-Border Interbank Payment System (CIPS) — which processes payments in Chinese yuan — also has potential to replace SWIFT. The system has an expansive network of 1,280 financial institutions, said Peter Keenan, the cofounder and CEO of Apexx, a payments provider that used to work with Russia’s domestic Mir payment card. That’s compared to SPFS’ much smaller network of 400 users.
There are few alternatives to SWIFT, Keenan told Insider: “This is one of the reasons why Russia is looking to CIPS and an alternative for Asian payments specifically.”
Here’s how China and Russia’s SWIFT alternatives could cause disruptions in the global payments system and the dollar’s dominance.
How do China’s and Russia’s alternatives to SWIFT work?
China’s central bank launched CIPS in 2015 with the aim of internationalizing the use of the yuan. CIPS still relies largely on SWIFT for cross-border messaging, but it has the potential to operate on its own messaging system, said PS Srinivas, a visiting research professor at the National University of Singapore’s East Asian Institute.
Russia’s SPFS, on the other hand, has been limited to domestic use. New members are not likely to join now, as the move could be construed by the US and its allies as trying to help Russia evade sanctions, Srinivas wrote in a March report. But Moscow is working with Beijing to connect it with CIPS to work around the SWIFT ban, Reuters reported.
“To get rid of risks associated with maintaining trade turnover, establishing cooperation between the Russian and Chinese financial …read more
Source:: Business Insider