SWIFT – Possible Victim of a Global Re-Alignment

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As we have stated earlier, the nature of warfare is constantly evolving. Conventional warfare is not only too expensive, but it brings with it possibilities of economic and diplomatic isolation and damage. We will see more instances of cyber warfare, propaganda, disinformation, false flag operations, etc. in the future. These are effective ways to create damage. However, when it comes to truly bringing a nation to its knees, nothing can be more effective than economic warfare. The US discovered this decade back when the Gulf countries imposed an embargo in the wake of the Arab-Israeli War leading to the birth of the Petrodollar under the stewardship of Dr. Henry Kissinger. The Petrodollar has ensured that the GCC countries are unable to weaponize Oil. The mounting US deficits and Saudi Arabia’s vast US Security holdings have made it possible for the Kingdom to threaten a dump of $750 billion US Securities if the US Congress declassify 9/11 documents linking Saudi involvement.  

The US’s saviour during the Oil Embargo of 1973-74 was Iran, who ironically has been the victim of severe US Sanctions for a long time until the 2015 Iran Nuclear Deal. The US Sanctions and freezing of Iranian accounts and its inability to transact in the US dollar was made possible by SWIFT, a front of the Washington Consensus. SWIFT stands for the “Society for Worldwide Interbank Financial Telecommunications”. It is a messaging network that financial institutions use to transmit information and instructions securely through a standardised system of codes. SWIFT system came into existence in 1973. Seven major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner. Iran re-entered SWIFT system in February 2016. As things stand currently, Iran has yet to reap the windfalls of its arrivals on the international scene and several countries are still circumspect about the possibility of future sanctions and of course Iran’s history of “irresponsible” nuclear behaviour does not help. 

The case of secret cooperation between the US government and SWIFT came into limelight in 2006 after a Belgian commission accused SWIFT of secretly supplying US authorities with massive amounts of personal data for use in anti-terror investigations, violating EU privacy rules. The US could play the role of big brother/international bully as long as there was no challenger. The rise of China and its increasing global clout is systemically shaking things up. China, another communist country like the US’s other bête noire Russia does not have an obedient gene in its DNA and is unwilling to accept the status quo set up by the US via its Washington Consensus. In a sign of things to come, China has already launched it’s Yuan linked gold rate and is working towards setting up a completely parallel geopolitical and geo-economic system via AIIB, OBOR, etc. 

China has been calling for de-dollarization for a while now. In 2015, China launched its alternative to the SWIFT called the China International Payment System (CIPS) to facilitate cross-border transactions in the Yuan at a much cheaper cost. Needless to say, Russia, reeling under UN Sanctions has already stated it could join the CIPS. Other nations that are US/NATO/EU enemies will also find this system very appealing. The Yuan’s entry in SDR will force central banks to increase their Yuan holdings, and the CIPS is very conveniently placed to take advantage of it. 

Iran’s Chabahar Project with India has the potential to become a game-changer for Iran and India. However, Iran’s gain is bound to be the loss of GCC countries. It should come as no surprise that post India and Iran’s signing of Chabahar; voices can be heard asking if this deal is flouting any international norms as Iran’s sanctions are being gradually phased out. The Chabahar Port is crucial for trade with Central Asia, Afghanistan, Russia and eventually Europe. If the US continues to play spoilsport, the day may not be far when Iran joins the CIPS and rejects SWIFT. China is also expected to launch its Yuan-denominated Crude Oil futures contract in 2016 to compete with the London Brent and US WTI. With Iran controlling such a huge amount of trade and countries like Iran, Russia and perhaps even CIS nations (in the future) adopting CIPS, what would the impact of any UN Sanctions really be?  More importantly, where will this leave SWIFT?

In an interesting turn of events, Goldman Sachs, the “official” US Govt banker filed a SETLcoin Patent in December 2015 for cryptographic currency for securities settlement. Goldman has reasoned this with the time loss due to SWIFT’s minimum three working days settlement of international transactions and expensive norms. It has further stated that SETLcoin will facilitate the exchange of assets much quicker, efficiently and securely and also work for transactions between virtual and non-virtual wallets. JP Morgan, Barclays, Commonwealth Bank of Australia, State Street, RBS, BBVA, UBS and Credit Suisse are also backing the bitcoin and blockchain network advocated by Goldman Sachs. For SWIFT, this is the beginning of the end. Though it is arguing that it is best placed to facilitate blockchain technology on its vast existing networks, recent hacks of central banks are showing SWIFT as a defunct system that must go. In the recent past, cyber criminals have breached SWIFT security systems multiple times and have stolen more than $150 million from various banks across the globe. The biggest theft took place in February 2016 when these cyber criminals once again breached into SWIFT security systems this time in the Bangladesh Bank account at the Federal Reserve Bank of New York stealing $101 million. Interestingly, most of these attacks took place during 2015-16. 

In what could be the final nail in the coffin, Goldman Sachs, and China-based IDG Capital Partners led a $50 million investment into Circle Internet Financial Limited, a bitcoin start up on using technology to improve consumer payments in 2015. As global realignments take place, prominent players in the current ecosystem fight to stay relevant. Some of these players will be able to fight for their place in the sun, and some will fade away into the sunset. Will SWIFT become a victim of the fight for supremacy between the Beijing consensus vs Washington consensus? It will be interesting to see how things pan out for SWIFT?
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