- SWIFT created joint venture with China.
- The new system is expected to replace SWIFT.
- The questions pertaining the security will arise.
The announcement released by the Reuters in relation to the SWIFT entering into the joint venture with the Research Institute of the National Bank of China. Hence, it would mean that SWIFT will essentially be creating a new global transaction system.
SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters.
It could also mean Russia would benefit from the new system as well. At present, there are have been multiple innuendos that the new US administration wants to disconnect Russia from SWIFT system to appease the Ukraine. Nevertheless, Russia rolled out its own payment system.
The joint venture owned by the Hong Kong Branch of the SWIFT at the 55% and 45% is split between the multiple Chinese institutions.
There is an allocation of the 12 million Euros ($14,458,848.00 US dollars) for the integration of the information systems, data processing and consulting on the technical issues.
Interestingly, the CEO of the joint venture has strong ties to China. Last year, China launched the Crypto Yuan. The DCEP project took close to six years to complete. The payment system became available to customers on a “white list” of the Agricultural Bank of China in four pilot districts of Shenzhen, Xionggang, Chengdu and Suzhou.
China expects its digital currency to gain full control over the cash flows and to control the cross border payments. In addition, China’s cross-border payment system (CIPS) is competing with SWIFT amid rising Sino-US tensions. The financial analysts believe that the CIPS would make international payments almost impossible to access by the US.
However, it is also expected that Chinese developers, who developed the digital Yuan will also be working on the new system. The system is expected to replace SWIFT with the new international information banking transfer system, using the blockchain technology.
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
Thus far, there is not much information about the parameters surrounding the new system. The source code clearly will be owned by China. Even though, SWIFT owns 55%, China disregards any sort of the copyrights and in this case all information will be accessed by China, either legally or illegally.
The surprising part, that previous US administration overlooked the project being in the works. It would be interesting to observe the response of the US president Joe Biden administration pertaining the new joint venture.
The US can loose control over global finances and inadvertently loose the leadership position. Perhaps, this project needs to be rethought or even halted.
Overall, there are many questions arise in regards to the new system development. The issue with the security and transparency.
China gaining access to the foreign information and possibly use it for the data collection, future blackmail and even the chance to release the online viruses. There are not shortage of what China can do to violate the international laws, The coronavirus pandemic alone is enough to believe that China can destroy many lives around the globe.