Examining How Sanctions Sparked a Global Financial Shift and the Replacement of SWIFT
The United States’ decision to weaponize the dollar by freezing nearly $300 billion of Russian reserves and excluding Russia from the SWIFT international payment system has triggered a profound global shift.
This move, intended to punish Russia, has instead catalyzed the largest global initiative in human history to develop new markets, forge strategic alliances like BRICS, and build a robust, non-dollar financial system.
As nations like Russia and Iran devise innovative methods to circumvent US-imposed financial constraints, humanity is witnessing a transformative reconfiguration of international trade and monetary policies.
In This Article:
- Understanding the SWIFT Banking System
- Russia and Iran’s Alternative Financial Messaging Network
- The Surge in Trade Between Russia and Iran
- Implications of a New Non-Dollar Financial System
The United States weaponized the dollar by freezing nearly $300 billion of Russian reserves and locking Russia out of the SWIFT international payment system. This move initiated a global effort to create new markets, expand alliances, and establish a non-dollar financial system.
Understanding the SWIFT Banking System
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers.
SWIFT is a vast messaging network used by financial institutions to send and receive information, such as money transfer instructions, quickly, accurately, and securely.
Also Read: GCR Progress: Russia and Iran Planning Joint Gold-Backed Currency
Most global transactions involve SWIFT in some way. The EU has expressed interest in developing alternatives to SWIFT due to frustration with US-dominated sanction policies.
Russia and Iran’s Alternative Financial Messaging Network
Business between Russia and Iran is thriving despite being the most sanctioned countries in the world.
Iran’s exports to Russia surpassed $2 billion last year, marking a significant increase from previous years. The total value of bilateral trade between the two nations reached $4.9 billion in 2023. To facilitate this booming trade, Russia and Iran established their own banking solution.
The central banks of both countries connected Iran’s Sepam national financial messaging service to Russia’s SPFS messaging service, creating an alternative to the SWIFT system.
Russian banks have opened offices in Tehran and provided credit lines to support exports from Russia to Iran. Similar plans are in place to boost Iranian exports to Russia.
This collaboration is part of Iran’s “Look to the East” strategy, which aims to counteract US sanctions by expanding into new markets.
The Surge in Trade Between Russia and Iran
The 17th round of the Russia-Iran joint economic commission highlighted their commitment to increasing trade tenfold in the coming years.
Also Read: Asian Clearing Union agrees to use Iran’s financial messaging system as SWIFT alternative
A Russian economic delegation with 170 representatives recently visited Tehran to solidify this goal. The trade boost is also facilitated by the direct banking solution between the two countries, which bypasses the US dollar.
Implications of a New Non-Dollar Financial System
The US and EU sanctions against Russia have had minimal impact on Russia’s oil exports or revenue.
This has led to the development of a non-dollar financial system that includes new trade routes and alliances. Greece’s shipping sector, for instance, continues to profit by selling ships to buyers linked to Russia. Additionally, countries like India and China benefit from buying Russian oil and Greek ships, while Dubai middlemen facilitate these transactions.
The sanctions have inadvertently encouraged countries to act in their best interests by creating new markets and financial systems that do not rely on the US dollar.
This shift has significant implications for the global economy, potentially reducing the dominance of the US dollar in international trade.
The Bottom Line
The United States’ use of the dollar as a weapon has sparked a global shift toward creating alternative financial systems and expanding trade alliances. Russia and Iran’s collaboration to bypass the SWIFT system is a prime example of this trend.
As countries continue to seek ways to counteract US sanctions, the global financial landscape will see significant changes, especially with a decline in the dominance of the US dollar.
Contributing article: https://mishtalk.com/economics/sanction-irony-trade-between-iran-and-russia-soars-as-swift-circumvented/