Since last year, a small but vocal number of Western commentators and politicians have been calling for banning Russia from the SWIFT payment system, a move that would impact Russia’s economy far more than the economic sanctions adopted so far. Recently, Prime Minister David Cameron suggested keeping the option of excluding Russia from the Belgian-based payment system on the table. Considering that there is a broad interest in “raising the cost” for President Putin, and that military engagement is highly unlikely, the SWIFT option is indeed a possibility.
Policy makers in Beijing are likely to be secretly rooting for such a move, for it would benefit China in several ways.
First, asking SWIFT (the Society for Worldwide Interbank Financial Telecommunication) to stop working with Russian banks would affect the Russian economy far more than countries like Iran, because Russia’s economy is much more globalized and interconnected, and thus more vulnerable to such restrictions. SWIFT sanctions would push Russia further into China’s economic orbit and become less of a competitor in Central Asia. Just like the recent Sino-Russian gas deal, most new deals Moscow strikes with Beijing would be highly beneficial for China.
Secondly, and most importantly, the move would weaken SWIFT as a global standard. The cooperative organization plays a crucial role in the world financial system, and its perceived neutrality is its key strength. Pushing Russia out of the SWIFT banking payment system would send a powerful message to decision-makers in Beijing that the service has turned into a tool of Western foreign policy. If Moscow can be targeted, the thinking goes, China could be next at some point in the future. Efforts to strengthen new platforms such as China Union Pay, an alternative payment system set up in 2002, would thus likely to be accelerated in order to obtain greater autonomy. Russia, aware of the West’s discussions about cutting Russia off SWIFT, has been working on an alternative system, yet Moscow would, in any case, also opt for embracing China Union Pay.
While other large economies that have not joined the West in condemning Russia — such as India and Brazil — would continue to using SWIFT, they would also begin to look out for alternative mechanisms to continue doing business with Russia, possibly further strengthening Union Pay’s international footprint. The Chinese interbank credit-card association already accounts for 45% of all credit and debit cards in circulation and is now accepted in 135 countries. The exclusion of Russia from the SWIFT system would also strengthen those in China and Russia who seek to avoid the US-dollar when doing intra-BRICS trade.
For now, the Western financial system remains firmly in control. That is mainly due to the strength of the US dollar. 87% of international trade is still conducted in US dollars and 61% of global foreign-exchange reserves is denominated in the currency. Yet the more profound and lasting Russia’s estrangement with the West becomes, the more likely the emergence of alternative systems — most likely to be led by China — will become.
Read:
OBOR: China’s Pivot to Eurasia
How the Chinese-financed Nicaragua Canal would change regional dynamics
Responsible Protection: Chinese norm entrepreneurship?
Photo credit: ITAR-TASS/Barcroft Media
