What are the alternatives to the SWIFT payment system?, Pg12

Key Highlights:

• The New Delhi Declaration from the recent BRICS Summit resolved to increase trade among member countries using national currencies.
• Countries are actively seeking alternatives to the SWIFT payment system due to the increasing use of financial sanctions and the weaponization of the U.S. dollar.
• Key alternatives include Project mBridge, China's Cross-Border Interbank Payment System (CIPS), and Russia's System for Transfer of Financial Messages (SPFS).
• Project mBridge, a multi-CBDC platform, achieved minimum viability, with the Bank for International Settlements (BIS) exiting its support in October 2024.
• CIPS has expanded its reach to over 120 countries, including most BRICS members, facilitating significant yuan-denominated transactions.
• Russia's SPFS experienced rapid growth in 2023, with over 440 entities joining after Russian banks were disconnected from SWIFT.
• India and Russia conduct 96% of their bilateral trade using roubles and rupees, supported by 22 Russian and 17 Indian banks.

Detailed Insights:

• The BRICS Summit in New Delhi considered linking Central Bank Digital Currencies (CBDCs) for cross-border payments, though this proposal was not included in the final declaration.
• The push for alternative payment systems is driven by geopolitical factors, particularly the impact of U.S. financial sanctions on countries in the Global South.
• Project mBridge was launched in 2019 by the Hong Kong Monetary Authority and the Bank of Thailand to enable direct peer-to-peer CBDC settlement.
• The platform utilizes the mBridge Ledger, a custom-built blockchain designed by central banks for multi-currency cross-border payments using CBDCs.
• The Bank for International Settlements (BIS)'s exit from Project mBridge in October 2024 raised speculation about its potential use to circumvent sanctions.
• CIPS was established by the People’s Bank of China in 2015 to promote the international use of the yuan by allowing direct onshore clearing of transactions.
• The inclusion of the renminbi in the Special Drawing Right (SDR) basket by the International Monetary Fund has contributed to the increased acceptance of CIPS.
• Despite its growth, CIPS processes a smaller volume of transactions compared to established global systems like the U.S.-based Clearing House Interbank Payments System.
• Russia developed SPFS in 2014 as a contingency against Western sanctions, which became critical when its banks were cut off from SWIFT in 2022.
• Iran's local interbank system, SEPAMA, is connected to SPFS, demonstrating a growing network of non-Western financial communication channels.
• The robust payment infrastructure between India and Russia, utilizing national currencies, is considered a highly effective mechanism for Russia's international trade settlements.

Key Concepts Involved:

• SWIFT: A global messaging network used by financial institutions to securely send and receive information and payment instructions.
• Central Bank Digital Currency (CBDC): A digital form of a country's fiat currency, issued and backed by its central bank.
• Bank for International Settlements (BIS): An international financial institution owned by central banks that fosters global monetary and financial cooperation.
• Special Drawing Right (SDR): An international reserve asset created by the International Monetary Fund to supplement member countries' official reserves.
• Global South: A term referring to countries in Asia, Africa, and Latin America, often characterized by developing economies and historical colonial ties.