Turkey is joining Russia's Rouble-based alternative to SWIFT, and together with China and potentially India could create the widest demographic area using the system. The dominance of the U.S. dollar is to be challenged.
After repeated warnings over the past few years, Turkey and Russia signed an agreement to increase the use of rouble and lira in cross-border payments, when Turkey signed to join the Russian alternative to SWIFT, the international telecommunications protocol used by banks worldwide, including central banks.
Even though SWIFT is an international association owned by its members, with more than 10,000 banks worldwide using its systems for interbank transactions, the network safety began to be questioned after series of cyberattacks back in 2015 and 2016. Furthermore, confidential information on the theft of $101 million from the Central Bank of Brazil leaked out.
For the first time ever since SWIFT was launched, these cases raised doubts on the system safety, and brought about competitors, including Russia, to intensify their efforts in SWIFT alternatives development.
Apart from Turkey, Russia also signed agreements with China to strengthen trade between the two countries and to increase the percentage of bilateral trade in yuan and rouble. The bilateral trade between China and Russia rose from $69,6 billion in 2016 to $107,1 billion last year. China is Russia’s largest trading partner both for imports and exports.
Russian Finance Minister Anton Siluanov signed the agreement with Ankara on Tuesday, Reuters reported. The agreement encourages both the countries to start using the Russian system in trading.
As part of the agreement, Turkish banks and businesses will connect to the Russian version of the Swift system. Additionally, the infrastructure in Turkey should be improved so as to allow Russia to introduce their MIR cards as an alternative to MasterCard and VISA in the country.
Russian President Putin warned of potential impacts of American sanctions, which could influence the value of the dollar in the global financial system and make more countries seek for alternatives to SWIFT. And that should be kept in mind even though American president Trump expressed his positive attitudes towards Turkish President Recep Tayyip Erdogan on Tuesday.
For example, the European Union despite being Washington's ally attempted to launch their own alternative to Swift to make payments to Iran during Trump's sanctions towards the country.
As Putin warned, the American sanctions against Russia are a "colossal strategic mistake" and can jeopardize the unity of the dollar-based global financial system.
It is obvious that the dollar is getting weaker against EUR and CNY in the long term. According to BIS statistics, the dollar was parity counterpart to about 82 % in nominal transfers at the beginning of the year. Unless the US politics rationalize, the situation will change in the short term.