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Russia's Alternative to SWIFT: A Challenge to the US?

As Russia invites its BRICS partners to join its alternative to SWIFT, US abuse of its control of the world financial system hastens the day that will end.

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This post first appeared on Russia Insider

There has recently been a flurry of articles about Russian proposals to set up with its BRICS partners an alternative to the international interbank payment system known as SWIFT.

These proposals are being presented by some as part of a Russian-led attack on the U.S. dominated financial system.

<figcaption>Will Russia replace SWIFT with its own system?</figcaption>
Will Russia replace SWIFT with its own system?

This is a misunderstanding.

SWIFT is a system that enables banks to transfer money electronically to each other. It is a purely technical tool set up to serve banks. In and of itself it is politically value neutral and, left to themselves, the Russians would have no interest challenging it.

It is not the Russians who are attacking the U.S. by setting up an alternative to SWIFT. They are doing that not because they want to but because they have to.

To be precise, they are doing it because certain Western countries, most particularly the U.S. and Britain, have talked seriously over the course of the last year about expelling Russia from SWIFT.

Though it is debatable how legal that would be, the U.S. and the EU undoubtedly can expel Russia from SWIFT if they want to.

SWIFT’s headquarters are located in Brussels. SWIFT is therefore subject to EU rules. SWIFT would therefore be obliged to carry out an EU directive to exclude Russia if such a directive were ever issued.

Since U.S. banks are major operators of SWIFT, the U.S. --- more controversially --- also claims to have jurisdiction over SWIFT on the premise (doubtful in international law) that its jurisdiction extends to any international body that works with U.S. citizens or companies.

When the U.S. wanted to expel Iranian banks from SWIFT, its officials had to comply. Had they not done so they would have risked exclusion from the U.S. or even possible prosecution by the U.S. under U.S. law in U.S. courts.  Given the realities of the modern world, it is hardly surprising that SWIFT’s officials were not prepared to risk this.

Given that Russian banks use SWIFT even --- indeed especially --- for transfers they make to each other, and given the very real possibility that Russia might be excluded from SWIFT, Russia has no realistic option other than to create an alternative interbank payment and transfer system to protect itself and its banks in case the worst happens.

Since Russia has been forced to create an alternative to SWIFT, it makes sense for Russia to invite its BRICS partners to participate, and that is what is happening.

Of course it is possible --- and even likely --- that such a Russian led alternative to SWIFT will lead in time to a challenge to SWIFT, even if Russia is not in the end excluded.  

Even if what is being set up is intended merely as a backup, as appears to be the case, it will still mean that before long there will be two parallel interbank transfer and payment systems operating simultaneously and in parallel with each other. The possibility of a rupture would be very real, and this might lead in time to a broader challenge.

That however is the result not of Russian policy but of the short sighted way the U.S. treats U.S. dominance of the world financial system -- not as a trust requiring performance by the U.S. of certain international obligations, but as a foreign policy tool to be abused when the U.S. feels like it.

It is this mindset that has now obliged the Russians to set up an alternative to SWIFT, and which is hastening the day when U.S. domination of the world financial system will finally end.

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