Evolving Geopolitics and Shift in Global Payments Systems

The European Union (EU) central bank has frozen Russian reserves approximately €300 billion of assets since start of Ukraine war, with most held at Euroclear in Belgium. Freezing Russian assets by the EU can indeed erode trust in Western financial systems. When governments seize or restrict access to foreign assets it signals to other nations and investors that their wealth could be at risk under similar geopolitical pressures. This undermines confidence in the stability and impartiality of Western financial institutions, which rely on trust to function as global hubs. Non-Western countries might accelerate efforts to diversify away from dollar- or euro-based systems, fearing similar actions. The SWIFT system’s use as a sanction tool already sparked such concerns, pushing some nations toward alternative payment networks like China’s CIPS.

Though these measures are stated to counter Russia’s actions, it may not be in spirit of upholding international law but rather act as weaponizing financial systems. However, the precedent set for Russian central bank reserves may spook investors and governments globally, as it shows assets may be targeted for political reasons. This may weaken the euro’s appeal as a reserve currency and bolster calls for de-dollarization or decentralized systems.

The ongoing shift from SWIFT to regional payment networks is a notable trend in global finance, driven by geopolitical, economic, and technological factors. Though SWIFT remains the backbone of global payments, regional networks and fintech solutions are gaining traction for their speed, cost-effectiveness, and sanction-avoidance capabilities.

Countries facing sanctions or exclusion from SWIFT are developing alternatives to reduce reliance on Western-dominated systems. China’s Cross-Border Interbank Payment System (CIPS) Processes $17 trillion annually, with growing adoption for yuan-based trade. mBridge is a CBDC-based platform. It is being used for cross-border settlements, involving China, Hong Kong, UAE, and Thailand. Non-Bank Providers e.g. Companies like Wise, Airwallex, and Inpay offer faster, cheaper transfers using local rails or proprietary networks. Iran’s ACUMER is designed to bypass SWIFT and facilitate trade under sanctions.

SWIFT transactions often involve high fees (transaction and FX fees, up to 3.5%) and can take 1–6 days due to intermediary banks. Regional networks like CIPS or alternatives like Airwallex and Inpay leverage local rails for faster (same-day) and cheaper transfers, with 90% of Airwallex transactions using local rails.

Blockchain and digital currencies (e.g., China’s mBridge CBDC pilot) enable near-instant settlements, reducing costs by up to 98% compared to SWIFT. ISO 20022 standards, adopted by SWIFT and others, improve interoperability but also allow regional systems to integrate more efficiently.

Southeast Asian countries (e.g., Indonesia, Malaysia, Philippines) are building regional payment gateways to connect national systems, though aligning regulations remains a challenge. BRICS+ nations are exploring interconnected regional payment systems to reduce dependence on a single reserve currency like the U.S. dollar.

SWIFT’s reliability and network effect (44.8 million daily messages) make it hard to replace, despite criticisms of cost and speed. It remains dominant, handling $150 trillion annually across 11,000 institutions. SWIFT is adopting ISO 20022 to enhance data richness and interoperability, though full migration is ongoing.

Innovations like SWIFT Go (processes 85% of low-value payments and completes in 3 minutes) and GPI (60% of payments credited in 30 minutes) address speed and transparency concerns. De-dollarization is visible. Though the dollar still dominates at ~88% of SWIFT transactions,  according to various estimates, China’s share of global trade in yuan rose from 1.9% in 2019 to 3.2% by 2024. A multipolar payment landscape is emerging. Though SWIFT’s scale and trust is keeping it central for now, it is being challenged by regional systems, increasing complexity and reduce global interoperability.

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