As seen with Russia, the exclusion from the world monetary system seems to be a favorite choice of western countries to combat hostile powers. In the past months, US, UK and EU announced the removal of seven Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT). This international fund transfer system is widely used to communicate the financial instructions required to transfer large sums of money and settle payments for exports and imports. Due to its efficiency and backing by major countries, it handles 77 trillion dollars in export-import transactions which amounts to 56% of global trade. This accounts for “11,000 member banks and financial institutions in over 200 countries and territories.” Not only have they been semi-excluded from SWIFT, but $300 billion worth of Russian assets have been frozen.
This sort of financial hostility is not something novel, as seen by the exclusion of Iranian banks. However, are they actually in any way effective? Such hostility will lead to mass unemployment, a decrease in purchasing power, a shortage of crucial commodities and all things associated with an economic recession that leads to a humanitarian crisis, which can change hostile policies. However, as stated by Deputy Director of the CIA David Cohen, this logical monetary coercive sanction isn’t practical if the sanction aims at regime change. As noted by Dominik A. Leusder, for instance, in Iran, it didn’t even lead to lasting behavioral changes related to the issues. In addition, the apparent humanitarian consequence of such exclusion is always catastrophic.
This war has clearly shown that, as opposed to the views of globalization champions, financial integration is a weapon of coercion. This weaponization of the monetary system highlighted by Russia’s semi-exclusion from SWIFT and freezing of financial assets has been used in the past. An example is Afghanistan when the USA seized $7 billion worth of assets after the Taliban took control of the central bank. They then “cynically distributed half to the families of victims of the September 11 attacks, Afghanistan, the poorest country in Asia, now finds itself in a devastating famine that could result in millions of deaths,” said Leusder. Coercion using monetary means will continue to be used and gain more power as the world becomes more globalized.
The threat of dependence on the dollar and the power which the currency gains, together with western dominated global financialized systems have led to the creation of multiple alternatives. The primary ones are Russia’s “System for Transfer of Financial Messages (SPFS)” and the Chinese “Cross-Border Interbank Payments System (CIPS)” ($12.68 trillion) which are being widely adopted. In addition, due to technological innovations, many local currencies are being adopted for trade. As such, it’s predicted that the war will lead to further monetary fragmentation at a smaller level. This has led to outcries of opinion stating that this is the dollar’s demise. However, as Gita Gopinath, the IMF’s First Deputy Managing Director, stated, “The dollar would remain the major global currency even in that landscape” in the medium term. This is because the dollar is backed by highly credible institutions that are trusted (meaning the dollar won’t collapse) and capable of managing crises. Chinese renminbi (with CIPS) is seen as the most significant rival. However, Chinese capital controls aren’t very alluring and hinder its acceptance by international markets.
