COMMENT: Marty; Some people are trying to claim that China in bypassing the Swift System, they are undermining the dollar. The latest absurd statement is that Japan will bypass the dollar and SWIFT System to transact using China’s CIPS system in inter-bank settlement. I really had to laugh at how ignorant this statement is for it would mean Japan will no longer sell anything in the USA. It seems that these people so desperate to kill the dollar clutch at anything and we just laugh in the trading rooms. I think you should address this statement for the naive people out there who are clueless as to real international trade.
REPLY: Yes, I agree, You are right. The average person out there may read these headlines that are written by people without a day of real world experience. They seem to confuse clearing and investment. Ever since China began to set up a competition to the Western financial institutions back in 2013, there have been countries in the East dealing with China who have begun to use the CIPS System. That makes perfect sense when you are dealing with China. However, that does not mean that CIPS can compete with the SWIFT System with regard to trade in the West. Japan joining CIPS is by no means to the exclusion of SWIFT.
The SWIFT (Society for Worldwide Interbank Financial Telecommunication) is an industry-owned limited liability cooperative society set up under Belgian law – not US Law. It is controlled by its member banks (including central banks) and other financial institutions. SWIFT’s business is to supply secure messaging services contributing to greater automation of financial transaction processes and to provide a forum for financial institutions to address issues of common concern in the area of financial communication services.
SWIFT was founded in 1973 by 239 banks from 15 countries. Since then, there has been a steady increase in the number of financial institutions and countries connected to SWIFT. By the end of 2002, more than 7,400 financial institutions from 198 countries were connected. There are three categories of SWIFT users: members (shareholders), sub-members (ie subsidiaries controlled by members) and participants. Members can benefit from all the services offered by SWIFT, whereas participants only have restricted access to a range of services that relates to their business.
The attempt by China to set up CIPS to compete with the SWIFT System is political and not purely economic. This idea that Japan and China will not participate in SWIFT is absolutely absurd. That would mean even credit cards would not be valid in the West.
Full article: China CIPS v Western SWIFT System (Armstrong Economics)