In the aftermath of Russia's invasion of Ukraine, some Russian banks were banned from using the international messaging service. Cross-border transactions for Russia have been hampered by the ban.
Russia and China are trying to establish alternatives to the US dollar.
The System for Transfer of Financial Messages (SPFS) is an alternative payment system that Russia is promoting. The system was set up. The central bank said in April it would keep the names of participants secret.
The Cross-Border Interbank Payment System (CIPS) can be used to replace the SWIFT. The system has an expansive network of over 1,300 financial institutions, according to the CEO of a payments provider that used to work with Russia's domestic Mir payment card. SPFS has a much larger network of 400 users.
One of the reasons why Russia is looking to CIPS and an alternative for Asian payments is because there are few alternatives to SWIFT.
The global payments system could be disrupted by China and Russia's alternatives.
The aim of the central bank of China was to internationalize the use of the yuan. PS Srinivas, a visiting research professor at the National University of Singapore's East Asian Institute, said that CIPS has the potential to operate on its own messaging system.
SPFS has been limited to domestic use in Russia. According to a March report, new members are not likely to join as the move could be construed by the US and its allies as trying to help Russia evade sanctions. Moscow is working with Beijing to find a solution to the SWIFT ban.
The head of the financial committee in Russia's lower house of parliament said that establishing cooperation between the Russian and Chinese financial messaging systems was needed to get rid of risks associated with maintaining trade turnover.
The Bank for International Settlements says the US dollar is the most used currency in the world.
It would create an alternative to the dollar-dominated SWIFT system if it were used to settle more trade. Beijing still manages its value tightly, so it has a long way to go to become the most dominant reserve currency in the world. It is not fully convertible to other currencies on the global market right now.
Russia is an energy powerhouse and the rise of an alternative currency for the industry could cause a domino effect on a world trading system dominated by the dollar. Experts say that Russians will not allow themselves to become so dependent onUSD and will instead look to China.
The role of CIPS for bilateral trade settlements between Russia and China for yuan transactions will likely grow over the medium term, according to the Asia Pacific economist for S&P Global Market Intelligence.
The SPFS was being considered by the Indian government for payments in rubles. The Chinese yuan could be used to reference the rupee-rubles trade, India's Mint media outlet reported last month. The Wall Street Journal reported in March that Saudi Arabia was in talks to be paid in the Chinese currency of the same name.
The dollar and euro still account for more than 75% of global payments, but the yuan is still only 3% of global trade.
The US dollar is used as a default base of foreign exchange. The US can borrow money overseas at a lower cost thanks to this status.
Losing the dollar's dominance will hurt the US economy.
It would hurt the value of the dollar and create inflationary pressure on the prices of consumer goods, according to a report.
The Bureau of Labor Statistics reported that US inflation rose 8.5% year-over-year in March, the most rapid one-year price surge in about 40 years.
Imported goods will be more expensive if the dollar weakens. It will be more expensive for Americans to travel to places where the dollar is weak.
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