China and Russia are working on their own alternatives to SWIFT By Investing.com
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Financing. SPFS for settlements in rubles, a proposal for a fee that countries such as India and China are already considering, writes Business insider.
Another challenge facing Russia (as well as China and India) is to find alternatives to the hegemony of the US dollar.
Russia created the Financial Messaging System (SPFS) in 2014, and now, in the absence of SWIFT, it has adopted a ruble payment system, but the Central Bank has said it will henceforth be stored in the secret names of the companies participating in this system, covering about 400 .
China has a cross-border interbank payment system (CIPS) that offers payments in Chinese yuan and can also replace SWIFT. There is an extensive network of 1280 financial institutions in this system.
Russia may resort to CIPS as an alternative to SWIFT, in particular for Asian payments.
Experts acknowledge that both the Chinese and Russian alternatives to SWIFT could detect disruptions in the global payment system and put an end to dollar dominance.
Now more about the CIPS. The Central Bank of China launched CIPS in 2015 with the aim of internationalizing usage, and while it is still under consideration to rely on SWIFT for cross-border messaging, it has the potential to run on its own messaging processing. And if Russian SPFS is still limited to domestic use, Moscow is contacting Beijing to link SPFS and CIPS to get around the SWIFT ban.
According to Anatoly Aksakov, the chief financial committee of the State Duma, “It is necessary to establish interaction between Russians and frequent meetings with legal entities, reporting on the risks arising from the trade turnover.”
If CIPS settles more trades, it will create a Chinese yuan-based alternative to the dollar-dominated SWIFT system so far. China intends to make the yuan the most controlled reserve currency in the world, but it has a long way to go, mainly because Beijing still manages its currency tightly and cannot yet fully convert the yuan into other currencies in the world market so quickly.
Russia is not going to be dependent on the US dollar and expects a turn towards China, which is why, according to Rajeev Biswas, Economist at S&P Global Market Intelligence for Asia-Pacific, “The role of CIPS in bilateral trade settlements between Russia and China on transactions in yuan is likely , will increase in the medium term.
Meanwhile, another country, India, is considering Russia’s proposal to collect SPFS for payments in rubles, as well as the possibility of using the Chinese yuan.
Also, the oil giant – Saudi Arabia – discussed the issue of paying in yuan instead of dollars for oil supplies to China. However, many factors are associated with the increased use of CIPS today.
What will happen in the future if the dollar loses its status as the world’s reserve currency? According to experts, if it loses its dominance, it will hit the US economy itself. The next dollar value will decline, which will create inflationary pressure on consumer goods prices. There is even a strong possibility that American consumers are much poorer as well.
Already, according to the Bureau of Labor Statistics, U.S. inflation surged 8.5% year-on-year in March, the fastest single-year price rise in 40 years.
If the price weakens, imported goods are expensive. Americans will also be unable to afford to travel to countries where the dollar is weaker against the big currency.
— Prepared Business Insider materials
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