SWIFT Dollar Decline — Global Problems

  • Opinion by Jomo Kwame Sundaram, Anis Chowdhury (Sydney and Kuala Lumpur
  • Inter Press Service

SWIFT Fortified Dollar

The instant messaging system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) informs users, both payers and payees, about payments made. So it allows smooth and fast transfer of money across borders.

Founded in 1973 and launched in 1977, SWIFT is headquartered in Belgium. It connects 11,000 banks and financial institutions (SFIs) in more than 200 countries. The system sends more than 40 million messages every day, while trillions of US dollars (USD) change hands worldwide.

It is co-owned by more than 2,000 SFIs and managed by the National Bank of Belgium along with the G-10 central banks of Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the UK and The United States . Co-ownership was supposed to prevent involvement in geopolitical disputes.

Many parties use USD accounts to settle dollar-denominated transactions. Otherwise, banks of importing and exporting countries would need accounts in each other’s currency in their respective countries to settle payments.


The US and allies — including the European Union (EU) — imposed sanctions on Russia and Belarus following their illegal invasion of Ukraine. Founded during the Cold War between the US and the Soviet Union, SWIFT remains firmly under Western control. It is now used to block payments for Russian energy and agricultural exports.

But in addition to halting income flows, it inadvertently erodes the USD’s dominance. As sanctions are increasingly imposed, such actions also intimidate others. While intimidation can work, it also provokes other actions.

This includes preparing for unforeseen events, for example by participating in other payment arrangements. Such alternatives can provide not only smoother, but also safer cross-border financial transfers.

As part of the US-led sanctions against the Islamic Republic, the EU has halted SWIFT services to Iranian banks from 2012. This blocked the transfer of foreign funds to Iran until a compromise was reached in 2016.

US financial hegemony

Based in Brussels, with a data center in the US, SWIFT is a ‘financial panopticon’ for the supervision of cross-border financial flows. About 95% of global USD payments are settled through New York’s private Clearing House Interbank Payments System (CHIPS) involving 43 financial institutions.

About 40% of global cross-border payments are made in USD. CHIPS settles $1.8 trillion in claims daily. Since all CHIPS members have offices in the US, they are subject to US law, regardless of head office location or ownership.

Therefore, CHIPS members such as BNP Paribas, Standard Chartered and others have paid nearly $13 billion in fines for Iran-related sanctions violations under US law for nearly two decades!

Exorbitant privilege

The USD remains the currency of choice for international trade and holding foreign reserves. That’s why the US has enjoyed an “exorbitant privilege” since World War II after the 1944 Bretton Woods conference created the gold-based “dollar standard” – set at US$35 for an ounce of gold.

With the USD remaining the preferred international currency, the US Treasury Department could pay low interest rates on bonds other countries hold as reserves. So it borrows cheaply to finance deficits and debts. This allows it to spend more, for example on its military, while collecting less taxes.

Due to the popularity of the USD, the US also benefits from: dominionnamely, the difference between the cost of printing dollar bills and their face value, ie, the price one pays to obtain them.

In August 1971, President Nixon unilaterally “terminated” US obligations under the Bretton Woods international monetary system, for example to exchange gold for USD, as agreed. Soon, the created Old order USD exchange rates – determining the relative values ​​of other currencies – were flexible in the new ‘non-system’.

In the ensuing uncertainty, the US ‘persuades’ Saudi King Feisal to ensure that all oil and gas transactions are settled in USD. For example, the 1974 OPEC deal for a ‘petrodollar’ strengthened the USD following the uncertainties following the Nixon shock.

Nevertheless, countries began to diversify their reserve portfolios, especially after the introduction of the euro in 1999. For example, the USD’s share of global foreign exchange reserves declined from 71% in 1999 to 59% in 2021.

With US rhetoric becoming more combative, dollar concerns have spread. On April 20, 2022, Israel — a staunch ally of the US — decided to diversify its reserves and replace some of its USD share with currencies from other major trading partners, including the Chinese renminbi.

Sanction response

The EU decision to exclude Iranian banks from SWIFT prompted China to develop its cross-border interbank payment system (CIPS). CIPS has been operational since 2015 and is managed by the Central Bank of China. In 2021, CIPS had 80 financial institutions as members, including 23 Russian banks.

By the end of 2021, Russia held nearly a third of the world’s renminbi reserves. Some view the recent Russian sanctions as a turning point, as those not entrenched in the US camp now have more reason to use other currencies instead.

After all, before the US seized about $300 billion in Russian assets, it had seized about $9.5 billion in Afghan reserves and $342 million in Venezuelan assets.

Russia threatened to exclude SWIFT after the 2014 Crimean crisis and developed its own SPFS (Financial Message Transfer System) messaging system. Launched in 2017, SPFS uses technology similar to that of SWIFT and CIPS.

Both CIPS and SPFS are still under development and serve largely domestic SFIs. By April 2022, most Russian banks and 52 foreign institutions from 12 countries had access to SPFS. Ongoing developments can accelerate their progress or merger.

The National Payments Corporation of India (NPCI) has its own domestic payment systems, RuPay. It settles millions of daily transactions between domestic SFIs and can be used for cross-border transactions.

Sanctions cut both ways

Unsurprisingly, those unaffiliated with the US want to change the system. After the global financial crisis of 2008-2009, the head of China’s central bank called for “an international reserve currency decoupled from individual countries”.

Meanwhile, China’s USD assets have fallen from 79% in 2005 to 58% in 2014, likely further declining since then. More recently, the Bank of China has gradually expanded the use of its digital yuan or renminbi, e-CNY.

With more than 260 million users, the app is now “technically ready” for cross-border use, as no western bank is needed to transfer money across borders. Such payments for imports from China with e-CNY bypass SWIFT and CHIPS do not have to settle them.

Russia has long complained about US abuse of the dollar’s hegemony. Moscow has tried to ‘de-dollarize’ the dollar by avoiding using the USD in trading with other BRICS – ie Brazil, India, China and South Africa – and in its holdings by the National Wealth Fund.

Last year, Vladimir Putin warned that the US is biting the hand that feeds them by undermining trust in the US-centric system. He warned: “the US is making a big mistake by using the dollar as a sanctioning tool”.

The scope of US oversight of financial and US dollar payments will diminish, although not immediately. Western sanctions have thus unwittingly accelerated the erosion of US financial hegemony.

In addition to worsening stagflationary trends, such actions have prompted current and future targets to adopt preventive, defensive measures, with as yet unknown consequences.

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© Inter Press Service (2022) — All rights reservedOriginal source: Inter Press Service

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