As a result of attacking Ukraine, Russia received economic sanctions from the U.S. and EU.

However, China can provide CIPS as an alternative to SWIFT as the international trade system for Russia in order to provide aid to Russia in the Russian-Ukrainian War.

This is important due to the potential that China could  offset the effects of economic sanctions that the U.S., U.K., Canada, and EU have imposed upon Russia.

On March 2nd, the aforementioned countries passed a joint ban to exclude seven of Russia’s major banks from the Society for Worldwide Interbank Financial Telecommunication, also known as SWIFT (Zorthian).

This sanction denied Russian banks the ability to process international payments by no longer automatically acknowledging the validity of transactions between Russia and other member states of the SWIFT.

Simply put, the Russian currency, ruble, is cut off from global bank payments.

As a result, International corporations such as McDonalds, Hermes, and LVMH have declared to close all shops in Russia.

The impacts of Russia’s ban from SWIFT are felt by all classes in communist Russia.

China, as the country with the only possible alternative to SWIFT, could turn the tides for Russia’s economy.

China’s uncertainty on the Russian-Ukrainian war and their continuous  response to the international problem is raising concerns among many countries.

China provides explicit condolences to Ukraine but implicit support for the legitimacy of Russia’s motives for its actions in Ukraine.

The Chinese response, or lack thereof, to whether or not they see Russia’s action as an “invasion” has been mainly by dodging any questions regarding the matter. 

China’s continuous  uncertain replies makes it an unpredictable variable in the U.S and E.U’s attempts in throttling Russia off from Ukraine.

This is important because the yuan-based international banking system CIPS owned by China can give Russia an alternative to SWIFT.

This could minimise the effects intended by the SWIFT ban.

But economists share the sentiment that it’s more unlikely for CIPS to effectively replace SWIFT in Russia anytime soon (Handwerker) (Bloomberg).

Their doubt over the effectiveness of CIPS replacing SWIFT stems from the fact that CIPS requires the use of yuan, lack of yuan as establishment as an international currency, and uncertainty over Russia’s willingness to depend on yuan.7 

Nevertheless, if this presupposition proves to be false, China’s CIPS could provide Russia a method to escape its economic sanctions to continue its operation in Ukraine.

There are reasons to believe this could turn out to be true.

The percentage of Russia’s foreign exchange reserve stored in yuan-based assets has been steadily increasing over the years, which means there is an increasing dependency on yuan in Russia.

With yuan rising through the ranks to become the fourth most widely used international currency, a startling jump from 35th in 2010, the notion of lack of yuan’s establishment as an international currency deserves doubt (Bloomberg).

As a result, in the latest report by the Bank of Russia, 13% of Russia’s foreign exchange reserves were stored in yuan-based assets (The Central Bank of the Russian Federation).

There is no guarantee that the status quo will not change. Countries as behemoth as Russia joining CIPS could result in the necessary shift that could turn the tides for CIPS. 

As we continue to prepare for the future of geopolitics, we must not get too comfortable, and keep our eyes on China.

 

 

 

 

 

 

 

 

 

William Park

Grade 8

Seoul International School

 

 

 

 

 

 

 

 

 

 

 

 

Copyright © The Herald Insight, All rights reseverd.