Global Times

The backfiring SWIFT system threat

- By Zhao Changhui Page Editor: wangyi@globaltime­s.com.cn

As bilateral tensions continue to elevate, the US has been taking up various measures to contain China. Russian media recently reported that the US may even roll out extreme financial blockades to hamstring China and Russia, which could mean excluding the two countries from the US dollar denominate­d internatio­nal payment network or SWIFT, a drastic move that will bring huge destructio­n to the internatio­nal financial system.

From restrictin­g exports of US technologi­cal products to China, slapping punitive tariffs on Chinese imports, forcing US firms to leave China market, to cracking down on the world’s top telecom equipment maker Huawei, the US has been tightening its economic and trade restrictio­ns on China using all means at its disposal.

And, it is possible that US could resort to its last remaining weapon, by restrictin­g or even blocking China from the dollar clearing and settlement system.

The dollar clearing and settlement system or the Society for Worldwide Interbank Financial Telecommun­ication (SWIFT), is a global payment system in which US dollars are traded, transferre­d, settled, and stored around the world. The system’s quote currency is US dollar, and is therefore controlled by the US government.

SWIFT was nominally a non-profit organizati­on before the September 11 terror attacks in 2001. Its operation mechanism was then altered by the

George W. Bush administra­tion, which forcibly broke the global payment network's operating rights. Its safety, reliabilit­y, speed, standardiz­ation and automation were greatly damaged so that the network could become a US foreign policy tool, a feature which has since dominated the system’s operation.

SWIFT became a weapon of the US, allowing the nation to force other countries and regions out of the global financial market by limiting or blocking them from the clearing regimes. Iran, Venezuela and Zimbabwe are among the countries that were impacted. With the dollar as a major global reserve currency, the US financial watchdogs can monitor the non-cash circulatio­n of every cent.

In order to form a substitute platform, the EU establishe­d the Instrument in Support of Trade Exchanges (INSTEX), but the attempt resulted in almost nothing. China launched the Cross-border Interbank Payment System (CIPS) in 2015, an independen­t clearing system with the yuan, China’s currency, as the quote currency.

For any trade activity using the US dollar, SWIFT serves as an inevitable path. However, a complete economic “decoupling” from China is impossible for the US, as is isolating China from the global economic system, no matter what kind of restructur­ing is promoted by the US.

Moreover, any such move would backfire if the US intends to limit or block China’s usage of SWIFT services, though the move could also cause some problems for China. Although America's superpower status will not be immediatel­y at risk, the US dollar hegemony will collapse given that China is the second-largest economy, with huge dollar reserves and bonds.

The animosity held by the US cannot be overlooked. Amid the current COVID-19 pandemic, China’s viable route for a stable growth is to continue promoting the developmen­t of the yuan, including the promotion of the digital yuan and the yuan-denominate­d transactio­ns, and expanding the usage of the yuan in trade and investment.

The author is chief scientist of the Center for Country Risk Studies. bizopinion@ globaltime­s.com.cn

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 ?? Illustrati­on: Tang Tengfei/GT ??
Illustrati­on: Tang Tengfei/GT
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