The key pillars of U.S. economic hegemony are SWIFT, CHIPS, and the dollar. Weaponizing any one of them against the banking system of Russia, the 11th largest economy, will convince China that it needs an alternative to the trifecta to escape the ambit of American power.
Based in Brussels, but with a data center in Virginia, the cooperatively owned Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a “financial panopticon” that allows Washington to surveil cross-border fund flows. However, the actual policing often comes out of New York, where 95% of the world’s dollar payments are irrevocably settled.
The Clearing House Interbank Payments System, or CHIPS, is a private club of financial institutions. Its 43 members settle $1.8 trillion in claims every day using a pre-funded account at the Federal Reserve. They all maintain U.S offices, and are subject to U.S. law, which makes it easier for authorities to catch and punish. Millions of dollars in fees aren’t really worth the nearly $13 billion that CHIPS members like BNP Paribas SA, Standard Chartered Plc and others have paid in fines over nearly two decades of Iran-related sanction violations.
As an instrument of American power, CHIPS hasn’t gone unnoticed in Beijing. In the Canadian court battle to stop the extradition to the U.S. of Huawei Technologies Co. finance chief Meng Wanzhou, the Chinese firm questioned HSBC Holdings Plc’s decision to process $100 million of Skycom transactions in New York. Huawei argued that that since HSBC knew of its links with Skycom, a Hong Kong-based partner that sold equipment in Iran, the bank should have routed the funds through a smaller offshore dollar clearing system in the Chinese special administrative region — thereby avoiding putting the money on U.S. soil.
To shrug off the yoke of CHIPS, China has readied its own Cross-Border Interbank Payment System. CIPS settles international claims in yuan and can potentially run its own messaging network. (Since 2016, it has used SWIFT as its communications channel.) CIPS has grown rapidly. But as long as 40% of the world’s international payments are in dollars, a clearing facility for yuan — whose share is 3% — can’t be a replacement for CHIPS. Which is where e-CNY, the digital yuan that’s currently undergoing extensive pilot runs, enters the picture.
