Global De-Dollarization Continues as China Readies SWIFT Alternative

Reuters is reporting today that China’s International Payment System or CIPS is ready for use and could be launched as soon as September or October of this year. The system will be utilized as an alternative to the SWIFT payment system (Society for Worldwide Interbank Financial Transactions) that currently favors the U.S. dollar.

CIPS will increase use of the yuan internationally and strengthen its role as a reserve currency. The move is also expected to reduce global demand for U.S. dollars as now China will be able to conduct international trade without the need of greenbacks. CIPS will also make it easier and cheaper for large international corporations to conduct business with China. 

The new system would facilitate round-the-clock yuan-denominated deals. Currently, international yuan-clearing must be conducted through certain banks in Singapore, Hong Kong, London, or mainland China. At this time, there are only 14 banks permitted by the Chinese government to clear yuan transactions. 

In November of last year, the yuan officially moved to the number 5 spot of top currencies in use internationally, according to SWIFT. Official numbers of the yuan’s use show a 20 percent increase between December 2013 and December 2014. 

But some analysts believe the actual rank of the yuan could be much higher as a number of countries have reportedly already begun using the yuan as a reserve currency.

China is claiming the currency war has already been won. Billboards promoting the yuan as the new “world currency” were spotted in Bangkok last week and it is widely believed that the IMF will be pressured to include the yuan in the Special Drawing Rights later this year due to increased demand from emerging markets.  

The creation of CIPS is just the latest move by China and other BRICS nations to “de-dollarize” and gain further independence from the United States’ influence. 

Today, Putin ratified a law to provide funding for the BRICS New Development Bank and Russia has announced plans for its own SWIFT alternative to be put in place this Spring. The new system will help the country to further circumvent international sanctions over the conflict in Ukraine. 

In August, the UK made a formal request to SWIFT to block Russian use of the payment system but SWIFT refused. Despite not being blocked, Russia has continued to move forward with its own international payment system to avoid any potential blocks in the future.

If a full-scale war breaks out in Eastern Europe or if the United States is plunged into another economic crisis, it will certainly be to the advantage of China and Russia to have their own inter-bank system already in place. 

But even if neither of those scenarios plays out, one major benefit for both China and Russia is that now their international bank transactions will be protected from the prying eyes of the NSA.  

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