Context
- Driven by geopolitics, financial sanctions, and the weaponization of the U.S. dollar, nations across the Global South and BRICS are seeking alternatives to the Belgium-based SWIFT network.
Why Are Countries Moving Away from SWIFT?
- Multiple wars and repeated U.S. weaponisation of dollar-based financial sanctions are pushing Global South countries to seek alternatives.
- SWIFT (Society for Worldwide Interbank Financial Telecommunications) has long been the near-universal Belgium-based system for cross-border interbank messaging.
- Attempts to bypass it have been patchy so far, but interest in alternatives is growing amid geopolitical tension.
What is SWIFT?
- It is a global messaging network used by financial institutions to communicate information about international financial transactions.
- SWIFT does not itself transfer money.
- It provides a secure system through which banks exchange standardised payment instructions.
- It is headquartered in Belgium.
- It is a cooperative organisation owned by its member financial institutions.
Key Alternatives to SWIFT
1. Project mBridge
- A group comprising the central banks of Thailand, UAE, China (Digital Currency Institute of the PBOC), Hong Kong Monetary Authority, and Saudi Arabia.
- Enables cross-border transactions directly using central bank digital currencies (CBDCs), bypassing traditional correspondent banking chains.
- Built on a custom blockchain (mBridge Ledger) designed for multi-currency, cross-border payments in CBDCs.
2. SPFS (System for Transfer of Financial Messages)
- Developed by Russia in 2014 specifically to bypass Western messaging systems.
- Usage increased sharply after 2022, when Russian banks were cut off from SWIFT following sanctions over Ukraine.
3. CIPS (Cross-Border Interbank Payment System)
- Backed by the People’s Bank of China; launched in 2015.
- Allows global banks to clear cross-border yuan transactions directly, rather than routing through offshore clearing hubs.
- Includes participation from SEPAMA (Iran’s local interbank telecom system with ~52 Iranian bank branches) and foreign banks connecting via 106 nodes, including the Central Bank of Iran since 2023.
| Important CTC From this article- Central Bank Digital Currencies (CBDCs) |
Q. The terms "SPFS", "SEPAMA", and "mBridge", occasionally seen in news, are related to:
(a) Submarine communications cable networks connecting Global South nations.
(b) Bilateral climate finance mechanisms under the Paris Agreement.
(c) Alternative financial messaging and cross-border payment platforms.
(d) International space station protocols for satellite data sharing.
Answer: C
Explanation:
• SPFS – Russia's System for Transfer of Financial Messages, built to bypass SWIFT.
• SEPAMA – Iran's local interbank telecommunication system, linking Iranian banks (and now some foreign ones) for messaging outside SWIFT.
• mBridge – A multi-central-bank CBDC platform (China, UAE, Thailand, Hong Kong, Saudi Arabia) for direct cross-border settlement.