Geopolitical Threats to the Global Cross-Border Payment System

The Unraveling of a Unified World: Geopolitical Threats to the Global Cross-Border Payment System

In an era defined by interconnectedness, the seamless flow of money across borders has been the lifeblood of the global economy. For decades, a largely unified system, underpinned by the dominance of the US dollar and the messaging network of SWIFT, has facilitated international trade, investment, and remittances. However, the very foundations of this system are now being shaken by a confluence of geopolitical tremors. The weaponization of finance, the rise of competing economic powers, and the dawn of digital currencies are creating deep fissures, threatening to fragment the global payment landscape into rival blocs. This shift is not merely a technical adjustment in the back-end of global finance; it is a fundamental reordering of power dynamics, with profound implications for economic stability, national sovereignty, and the future of international cooperation.

The Dollar's Dominance and SWIFT's Shadow: The Architecture of the Old Order

At the heart of the post-World War II global financial order lies the unparalleled dominance of the U.S. dollar. Since the Bretton Woods Agreement, the dollar has served as the world's primary reserve currency, the main currency for invoicing and settling international trade, and the preferred asset for central banks to hold. This "exorbitant privilege," as it has been called, has granted the United States significant economic and geopolitical leverage. The vast majority of foreign exchange transactions involve the dollar, and a large portion of international debt is denominated in it, making it the linchpin of global finance.

Facilitating the dollar's reign and the functioning of the entire cross-border payment system is the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. It is crucial to understand that SWIFT is not a payment system itself; it does not hold or transfer funds. Instead, it is a secure messaging network that allows more than 11,000 financial institutions across over 200 countries and territories to send and receive information about financial transactions. Think of it as the central nervous system of the global financial network, transmitting payment orders, letters of credit, and other financial messages with a high degree of security and reliability.

The power of this system lies in its near-universal adoption. For a bank to operate effectively in the international sphere, access to SWIFT is virtually indispensable. This ubiquity, however, has also made it a potent tool of geopolitical influence. Because SWIFT is a Belgian cooperative, it is subject to EU law, but the United States has demonstrated its ability to exert significant pressure on the network. This has led to the "weaponization of finance," where access to the dollar-centric financial plumbing can be restricted to achieve foreign policy objectives.

The Rise of the Challengers: CIPS and SPFS

The very dominance of the dollar and SWIFT has sown the seeds of its own challenge. Growing dissatisfaction with the "weaponization" of the financial system and a desire for greater monetary sovereignty have spurred the development of alternative payment infrastructures, most notably by China and Russia.

China's CIPS: A Parallel Highway for the Yuan

Launched in 2015 by the People's Bank of China (PBOC), the Cross-Border Interbank Payment System (CIPS) is China's answer to the Western-dominated financial architecture. Unlike SWIFT, which is purely a messaging system, CIPS is a payment system that offers clearing and settlement services for cross-border transactions in the Chinese yuan (RMB). This makes yuan-denominated transactions faster and more cost-effective by enabling direct payments and onshore settlement.

The strategic importance of CIPS for China cannot be overstated. It is a crucial component of Beijing's broader ambition to internationalize the renminbi and reduce its reliance on the US dollar. By providing a viable alternative for international payments in its own currency, China aims to bolster its economic influence, particularly within the framework of its Belt and Road Initiative (BRI). For countries participating in the BRI, CIPS offers a seamless way to conduct trade and investment in yuan, bypassing the dollar-based system and its associated geopolitical risks.

While CIPS is growing in influence, it is important to note that it is not yet a complete replacement for SWIFT. A significant portion of CIPS transactions still use SWIFT for messaging between banks, highlighting the entrenched nature of the existing infrastructure. However, as China continues to expand CIPS's network and functionality, its potential to challenge the status quo is undeniable. By 2022, CIPS had expanded to 1,280 participating institutions in 103 countries, a significant increase though still a fraction of SWIFT's reach.

Russia's SPFS: A Sanction-Proof Lifeline

Russia's development of the System for Transfer of Financial Messages (SPFS) was born out of geopolitical necessity. The system was developed by the Central Bank of Russia in 2014 after the United States first threatened to disconnect Russia from SWIFT following its annexation of Crimea. SPFS is a financial messaging system that functions as a Russian equivalent to SWIFT, designed to ensure the continuity of financial transfers within Russia and with friendly nations.

The full-scale invasion of Ukraine in 2022 and the subsequent exclusion of major Russian banks from SWIFT by Western allies served as a major catalyst for the expansion and use of SPFS. While initially focused on domestic transactions, Russia has been actively promoting SPFS to its trading partners, particularly those in the Eurasian Economic Union (EAEU) and other allied nations. As of early 2025, a total of 177 financial institutions from 24 countries were participating in SPFS.

Like CIPS, SPFS is currently more of a regional alternative than a global competitor to SWIFT. However, its development and the ongoing discussions to link it with China's CIPS represent a significant step towards creating a parallel financial ecosystem that is less susceptible to Western sanctions. This collaboration could allow Russia and China to trade more freely in their own currencies, further diminishing the dollar's role in their bilateral transactions.

The Weaponization of Finance: Sanctions and their Consequences

The increasing use of financial sanctions as a tool of foreign policy has been a primary driver behind the push for alternative payment systems. The ability to cut off a country's access to the global financial system is a powerful coercive instrument, but its overuse risks undermining the very system it seeks to control.

The sanctions imposed on Russia following its invasion of Ukraine are a case in point. The freezing of hundreds of billions of dollars of the Russian central bank's foreign reserves and the exclusion of major Russian banks from SWIFT were unprecedented in their scale and scope against a major economy. These actions sent a clear signal to the world: reliance on the dollar-denominated financial system comes with the risk of being cut off for geopolitical reasons.

While these sanctions have undoubtedly created significant challenges for the Russian economy, complicating cross-border payments and access to key technologies, they have also had a number of unintended consequences. They have accelerated Russia's de-dollarization efforts, with a greater share of its trade now being settled in rubles and other "friendly" currencies. They have also spurred other nations, particularly in the Global South, to re-evaluate their own vulnerabilities and explore ways to reduce their dependence on the dollar.

The backlash against the "weaponization" of the dollar is not limited to countries under sanctions. Even allies of the United States have expressed concerns about the extraterritorial reach of US sanctions and the potential for the financial system to be used for political coercion. This has led to a growing debate about the need for greater "strategic autonomy" in the financial sphere, even within the Western bloc.

The Digital Currency Revolution: A New Geopolitical Battlefield

The emergence of central bank digital currencies (CBDCs) and stablecoins is adding another layer of complexity to the evolving geopolitical landscape of cross-border payments. These new forms of digital money have the potential to fundamentally reshape the international monetary system, and nations are increasingly viewing them as strategic assets in the global competition for financial influence.

The Rise of the Digital Yuan (e-CNY)

China is at the forefront of the CBDC revolution with its digital yuan, or e-CNY. While currently focused on domestic retail use, the international ambitions for the e-CNY are clear. Beijing sees the digital yuan as a tool to further the internationalization of the renminbi, reduce its dependence on the dollar-dominated SWIFT system, and enhance its influence in the global economy.

One of the most significant international initiatives involving the e-CNY is Project mBridge, a collaboration between the central banks of China, Hong Kong, Thailand, the United Arab Emirates, and the Bank for International Settlements (BIS). Project mBridge is a multi-CBDC platform that allows for direct, peer-to-peer cross-border transactions using distributed ledger technology (DLT). A successful pilot in 2022 demonstrated that the platform could significantly reduce the time and cost of cross-border payments, settling transactions in near real-time compared to the days it can take through the traditional correspondent banking system.

By promoting the use of the e-CNY in cross-border trade, particularly with countries along the Belt and Road, China is actively building a parallel financial infrastructure that bypasses the Western-controlled system. This could provide a sanction-proof alternative for countries looking to trade with China without relying on the dollar.

The Digital Euro and Europe's Quest for Strategic Autonomy

The European Union is also exploring the issuance of a digital euro, driven in part by concerns over its reliance on foreign payment providers and the "digital dollarization" of its economy. European Central Bank (ECB) officials have warned that the dominance of US payment giants and the growing use of dollar-backed stablecoins could undermine Europe's monetary sovereignty and expose it to economic pressure.

The digital euro is therefore seen as a strategic project to enhance Europe's financial independence and strengthen the international role of the euro. While not explicitly aimed at dethroning the dollar, the digital euro is intended to provide a public, European-controlled alternative for digital payments, reducing the continent's vulnerability to external policy shifts. The ECB is proceeding cautiously, with a focus on ensuring privacy and financial stability, but the geopolitical motivations behind the project are undeniable.

The Role of Stablecoins and the Private Sector

Alongside state-led CBDC projects, the private sector is also playing a significant role in the transformation of cross-border payments through the issuance of stablecoins. These are digital tokens pegged to stable assets, most commonly the US dollar. Stablecoins like Tether (USDT) and USD Coin (USDC) have seen explosive growth, facilitating fast and low-cost cross-border transactions, particularly in emerging economies and for remittances.

The rise of stablecoins presents a complex geopolitical picture. On the one hand, their dominance by dollar-pegged tokens could reinforce the dollar's role in the digital age. On the other hand, they also represent a shift of power away from traditional banking institutions and towards fintech companies and decentralized networks. The interplay between CBDCs and stablecoins will be a key area to watch, as governments and the private sector navigate the regulatory and competitive landscape of digital currencies.

Fragmentation and its Perils: A Less Stable, More Costly World

The culmination of these geopolitical and technological shifts is a growing fragmentation of the global payment system. Instead of a single, integrated network, we are witnessing the emergence of parallel systems and regional blocs, each with its own currency, rules, and infrastructure. This fragmentation poses significant risks to the global economy.

A fragmented payment landscape is likely to be a more costly and less efficient one. Businesses engaged in international trade would face increased complexity and higher transaction costs as they navigate a patchwork of different systems and regulatory requirements. Corporate treasurers will have to manage increased FX volatility, impeded cross-border liquidity due to capital controls, and disrupted payment rails. This could lead to a decline in global trade and investment, with some estimates suggesting that severe fragmentation could reduce global GDP by as much as 5% to 9%.

The negative effects of fragmentation are likely to be unevenly distributed, with smaller and developing economies being the most vulnerable. These countries often lack the resources to navigate a complex and fractured system and could face reduced access to international capital markets. This could, in turn, push them to align with one of the emerging economic blocs, further deepening the divisions in the global financial system.

Navigating the New Reality: Responses and the Road Ahead

The threats to the global cross-border payment system are real and growing. However, the future is not yet written. The international community, including governments, central banks, and international financial institutions, is grappling with how to respond to these challenges.

The G20 has made enhancing cross-border payments a priority, with a roadmap aimed at making them faster, cheaper, more transparent, and more inclusive. The Bank for International Settlements (BIS) is playing a key role in this effort, leading initiatives like Project Nexus to connect domestic real-time payment systems and exploring the potential of CBDCs to improve cross-border transactions.

International financial institutions like the International Monetary Fund (IMF) and the World Bank are also working to address the risks of fragmentation. They are calling for greater international cooperation on regulatory standards, providing technical assistance to developing countries, and advocating for a more representative global financial safety net.

For businesses, navigating this new environment will require a new level of strategic foresight. Corporate treasurers will need to become "geopolitical interpreters," embedding political risk into their financial models and developing diversified strategies for managing currency and liquidity risk. This will involve leveraging new technologies, partnering with agile fintech providers, and building resilient and adaptable payment infrastructures.

A New World Order in the Making

The era of a single, unified global payment system is likely coming to an end. The geopolitical tectonic plates are shifting, and with them, the very architecture of global finance. The rise of China, the assertiveness of Russia, and the dawn of digital currencies are all contributing to a more multipolar and fragmented world.

This does not necessarily mean a complete collapse of the current system. The US dollar and SWIFT will likely remain dominant for the foreseeable future, given their deep-rooted network effects and the lack of a viable single alternative. However, their preeminence will be increasingly challenged. We are moving towards a more complex, multi-currency, and multi-system world, where regional blocs and parallel networks coexist and compete.

The transition to this new order will be fraught with challenges and risks. Increased friction in cross-border payments, higher costs for businesses, and greater financial instability are all real possibilities. However, it also presents opportunities for innovation, competition, and the creation of a more inclusive and resilient global financial system. The choices made by policymakers, central bankers, and business leaders in the coming years will be crucial in shaping this new reality and determining whether the unraveling of the old order leads to a more chaotic and divided world or a more balanced and equitable one.