Yesterday Europe, the United States, Canada and the UK agreed to ban certain Russian banks from the SWIFT messaging system, the primary global network used for cross border payments. On the one hand, the West seems to have little choice following Russia’s invasion of Ukraine. However, in many ways, this is a financial nuclear option. Going nuclear has blowback. Using this weapon now will make it harder to do so in the future against other countries.
This isn’t just about payments shifting to cryptocurrency. It’s about a longer term move towards central bank digital currencies (CBDCs) for cross border payments. Payments using government currencies will become decentralized, removing the reliance on SWIFT.
Many central banks worldwide are involved in trials of multiple digital currency cross border payment initiatives known as multi-CBDCs (M-CBDC). That includes China – which is acutely aware of its reliance on SWIFT. Although most transactions still go via SWIFT, it has already created its own conventional alternative, CIPS.
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