SWIFT Debate Shows Politics, Payments Make Strange Bedfellows

The headlines all play on  the name “SWIFT” in some form or another: “Germany Wants A Swift End To SWIFT,” or “Some Critics Want A ‘SWIFT’ End To US Payments Dominance,” or “A Problem Has Arisen In Europe, Swiftly, Over Payments (And SWIFT).”

Here’s a non-SWIFT-ian musing: Politics makes strange payments bedfellows.

A bit of background: The swirl of headlines around recent declarations from Germany’s foreign minister for the EU, Heiko Maas, to set up its own international payments network, is one that brings to bear all sorts of issues over economics and politics. Maas said late this month at an ambassador’s confab in Berlin that the work on such a system has started, and the overarching theme has been a striving to end the sway SWIFT holds internationally.

“We must increase Europe’s autonomy and sovereignty in trade, economic and financial policies,” Maas said. “It will not be easy, but we have already begun to do it.”

In an interview with DW, the nod toward a buildout came from Chris Bovis, who is a professor of international business law at the University of Hull in the United Kingdom.

“The European Commission has been developing a system — a parallel system to SWIFT — which will allow Iran to interface with European financial systems, European clearing systems, using the nominations supported and created by the European Investment Bank based on the euro.”

SWIFT is short for the Society for Worldwide Interbank Financial Telecommunication, is connected to over 10,000 banks and cross border transactions are completed through its messaging activities. Though SWIFT is supposed to operate with some sense of political neutrality, transactions have (in the past) been blocked from flowing to, say, Cuba or Iran.

This time around, SWIFT will have to cut off Iranian banks from the SWIFT network by Nov. 4. The U.S. sanctions have proved an impetus for some European firms to withdraw from Iran, including Total, the French energy firm.

The Debate Springs Forth

A new payments system may spring forth from the vagaries of geopolitics. The aim, at least partially, of the creation of a separate international payments system is to preserve the Iran nuclear deal — a deal marked for withdrawal by the United States. That withdrawal came in May as President Donald Trump backed off from the agreement that promises no sanctions for Iran if it agreed to give up its nuclear enrichment program. For Europe, the intent is for the deal to continue — Europe buys Iranian crude oil and has other economic ties to the nation.

At this writing, Chancellor Angela Merkl, a huge driving force in German policy in all things international and economic, has stopped short of backing a European, parallel SWIFT system. She said that “the SWIFT agreement is extremely important, especially on questions of terrorism financing.”

In the wake of controversy over how to trade with Iran (and, yes, whether to trade with Iran), there has been a ripple effect. In one example, Mohammad Reza Pour Ebrahimi Davarani, who serves as chief of Iran’s Parliamentary Commission of Economic Affairs, said Russia had agreed to use decentralized financial networks such as cryptocurrencies to transact with Iran. And some news outlets reported as late as Wednesday morning (Aug. 29), that Iran has a state-backed plan in place to embrace cryptocurrencies, which is awaiting approval from the central bank.

We’ve seen this movie before, it seems. As DW noted earlier this week, a few arguments can be made that past is prologue. Two academics — Esfandyar Batmanghelidj and Axel Hellman — have taken note that there was a ban on Iran via SWIFT in 2012 to 2016 that resulted in “ad hoc messaging systems” created on a bank-by-bank basis in Europe, which could surface again. And it should be noted, too, that despite Trump’s assertions that SWIFT’s individual board members could face fines, travel bans or curbs on doing business here in the States, consider the fact that the board is made up of roughly two dozen of the biggest banks in the world — among them names such as Citi and Goldman Sachs.

Amid all the clamor, this week, Finance Minister Bruno Le Maire of France said he supported Maas’ volley across the international payments system. “I want Europe to be a sovereign continent, not a vassal, and that means having totally independent financing instruments that do not exist today,” Le Maire said, as quoted by Handelsblatt.

France and Germany bonded and banded together on the geopolitical stage? To this we say, a bit tongue in cheek, payments make strange bedfellows indeed.

Beyond the political rumblings, and what the Trump administration may or may not do, it would take time, money and effort to build a parallel system — one that might be duplicative of efforts that have already proven successful (see the “ad hoc” approach mentioned above), which takes care of an individual political system. Hellman, who serves as a policy fellow at the European Leadership Network, as quoted in Handelsblatt, said, “All of this requires political will in Europe, and that is a first key challenge. In general, I sense a shift in the mentality: That the defense of the Iran deal has turned into a broader debate on European economic and political sovereignty, its ability to conduct what it considers legitimate and legal business with whom it pleases and pursue foreign policy based on its own convictions and diplomatic philosophies.”

The heavy lifting may have begun, but a conclusion is neither foregone, nor swift.