Within Europe and the United Kingdom, banks that operate through financial infrastructures and hold most transactional data are now required by regulators to provide access to their customers' accounts. This contribution discusses differing models of how tech-driven companies gain access to financial infrastructures, and how recently introduced policies engender these processes. Large data-driven companies hereby seek access to financial transactions and try to embed payments within their platforms. Recently, there have been initiatives that merge the digital and the financial sphere by integrating the transactions that run through established financial infrastructures into digital platforms. “A drastic measure probably would trigger a long-term financial and economic crisis, so the United States is also very hesitant to do this,” Chen concluded.Financial transactions are part of everyday life, yet banking has largely withstood the digital transformation within most European countries. “However, given the current level of international exchange, if trade between China and Russia were cut off completely, it would take a long time for the United States to adjust to it, and the damage to supply chains would cause damage to the entire global economy.” If the United States doesn’t need Russian resources at all, and it doesn’t need Chinese products, it certain could impose severe sanctions. “In the final analysis,” Chen explained in the Observer article, “ the game between major powers depends on strength. It is also by far the largest exporter in the world, with 15% of global export trade compared to 8% for the United States. The financial consequences of such sanctions would be enormous.Ĭhina has a net foreign asset position of $4 trillion and holds $2 trillion of US Treasury securities. They do not deal directly with goods in trade, but only with bank payments for goods in trade.Īlthough CIPS is under the control of the Chinese government, the Chinese banks that it serves could be subject to sanctions, at least in theory. In this case, Russia would only be able to do business with some small banks.”īut “if the United States sanctioned Chinese banks in this way, the damage to the global economy would be too great for anyone to bear,” Chen said.Ĭlearing systems like SWIFT and China’s CIPS provide secure data transmission for banks that clear customer payments. If this is the case, the big Chinese banks may not dare to deal with Russia. If anyone deals with Russia, it might sanction them. “The United States is likely to threaten all financial institutions. But the key point is that these international cross-border systems all require the participation of actual banks. “It also could adopt the cross-border payment system established by China as a potential replacement for SWIFT. “Russia also built its own independent payment system,” Chen said. If no one is allowed to do business with Chinese banks, and other countries cooperate with these measures, then this system will not work.” The United States can sanction these banks. “For example, the payment system built by China may be independent of the SWIFT system controlled by the United States, but the intermediate nodes are all banks. “The RMB cross-border payment system still relies on banks as nodes, and these nodes can be sanctioned and pressured,” the Chinese academic said. Jiaotong University’s Chen also warned that sanctions on individual banks present a risk to the Chinese payment system. SWIFT sanctions on Russia put the financial ball in Beijing’s court. “If Russia and China linked their systems and offered an alternative to other authoritarian states, this could threaten American domination of financial markets,” Die Welt concluded. That is considerably less than the $400 billion of transactions that pass every day through SWIFT, but CIPS volume has increased rapidly,” the German newspaper reported. “CIPS already handles US$50 billion of daily transactions. Risks to the financial system cut both ways, the German daily Die Welt wrote on February 27. That would have disastrous consequences, Chen added. But the CIPS system, which China began to develop in 2015, is now fully operational.Ĭhina might be reluctant to help Russia circumvent SWIFT sanctions, said Professor Chen Xi of the Shanghai Advanced Institute of Finance at Jiaotong University in an “Observer” interview because the United States might retaliate by imposing sanctions on Chinese banks. In the past, exclusion from SWIFT meant complete isolation from global markets and normal trade financing, as in the case of American sanctions against Iran.
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