- Following Russia’s attack on Ukraine last week, NATO allies have decided to sanction Russia by barring it from the global SWIFT financial ecosystem.
- According to Bloomberg analyst Andy Mukherjee, the SWIFT, CHIPS, and Dollar are the key pillars of the US economic stronghold.
- According to reports, China has already begun work on a viable alternative to CHIPS – the Clearing House Interbank Payments System.
- China is constructing its own Cross-Border Interbank Payments System (CIPS).
Following Russia’s attack on Ukraine last week, NATO allies have decided to sanction Russia by barring it from the global SWIFT financial ecosystem. However, this could give rise to central bank digital currencies (CBDCs), particularly the Digital Yuan developed by the US’s economic rival China.
According to Bloomberg analyst Andy Mukherjee, the SWIFT, CHIPS, and Dollar are the critical pillars of the US economic stronghold. As a result, weaponizing them against Russia will persuade China to build an alternative to American dominance. According to reports, China has already begun work on a viable alternative to CHIPS – the Clearing House Interbank Payments System. In addition, China is constructing its own Cross-Border Interbank Payments System (CIPS).
In the same way that America’s CHIPS settles international payments in USD, China’s CIPS can settle claims in Yuan while operating on its messaging network. However, while CHIPs has a 40% global market share, CIPS processes only 3% of global transactions.
According to a Bloomberg analyst, China can redefine its position in the global financial market with the Digital Yuan, also known as the e-CNY. The token is “technically ready” for cross-border use, according to China’s central bank, the PBoC.
According to the analyst, China can easily persuade countries like Russia to use the e-CNY after being barred from SWIFT and CHIPS. In addition, blockchain-based settlements using Digital Yuan can challenge traditional payment systems.
According to John Hopkins economist Steve Hanke, imposing sanctions on Russia could counter the West. On Sunday, February 27, Hanke tweeted that “Weaponizing the SWIFT international payments system might cut Russia off, but risks eroding the dollar-dominated global financial system. Indeed, it will give rise to alternative systems developed by China & Russia. Just another example of why sanctions are counterproductive.”
